On Top of GST Council's 'To Do' List: COVID Relief, States' Cash Woes

· 1% Nominal Tax on Vaccines on the Anvil

· Virtual Meeting on Friday, 28 May

The Goods and Services Tax (GST) Council, meeting this Friday, after a gap of over seven months, should prioritise giving relief on the taxes levied on COVID-19 vaccines and critical medical supplies, and rationalise GST rates to provide relief to sectors that are worst hit by the second wave, according to regulatory experts.

A mechanism for paying States their compensation dues for this year shall also be a knotty issue for the Council to figure out, while little headway is expected on more contentious problems such as bringing petroleum products under the GST regime to reduce the burden of high retail fuel prices on the common man.

The Council should consider reducing the tax rates or zero rating the GST on essential material to combat COVID, from hand sanitizers to oximeters and oxygen concentrators.

FM Nirmala says that inputs should also be zero rated for the measure to have appreciable impact.

The Centre has staved off requests from States to reduce the 5% GST on vaccines and other GST levies on COVID relief material, but told the Delhi High Court last week that all requests for exemptions will be placed before the Council.

Last Friday, the Court held the imposition of 12% Integrated GST on imports of oxygen concentrators for personal use or received as gifts from overseas, as ‘unconstitutional’ and quashed the tax. However, this has yet to have an impact on law which places IGST and GST on par in matters of tax rates.

States’ burden

With five new finance ministers in the Council from the States with newly formed governments, and three of them not aligned with the BJP-led government at the Centre, the equations in the Council would be different from its last meeting in October.

The meeting on October 12, 2020, had ended without a consensus with several Opposition States refusing to accept the Centre’s compensation formula for last year as revenues tanked in sync with the economy due to the national lockdown.

States are still owed ₹63,000 crore from last year’s dues and GST cess collections are unlikely to meet this year’s compensation dues as well, following the spate of lockdowns across several States over the past two months.

Apart from the early release of outstanding dues, States may also press for a parley on a possible extension of the five-year period for which they were guaranteed compensation under the GST regime, said Niraj Bagri, partner at Dhruva Advisors LLP

Relief for Industry

While industries such as entertainment, hotels and tourism are impacted badly due to COVID and need relief measures, even sectors that continue to operate need support on many fronts, including getting due refunds quicker to free up their working capital needs.

“GST refunds for several exporters including gems and jewellery and IT sector are stuck up which must be processed quickly which will infuse liquidity and also give an impetus to our exporters. The gems and jewellery industry in our view has over Rs 1,000 crore stuck in past accumulated input tax credits and due to backlog in refunds.”

On May 1, the finance ministry announced some relief from GST compliances, but an exemption from late fees was introduced only for GSTR 3B for April, while delayed tax payments are not exempt from interest for the period of delay.