Finance Minister Nirmala Sitharam on Sunday, May 9, 2021, issued a clarification on how the exemption to domestic supplies and commercial imports of Covid related products and equipment would make them costlier for consumption by consumers. In a series of tweets, she described the process of accumulation and collection of IGST and how waiving off GST would impact the manufacturers and consumers.
The statement by the Finance Minister came in response to a letter addressed to Prime Minister Narendra Modi, by Chief Minister of Bengal, Mamta Banerjee. In the letter, she enquired about the exemption from GST and customs duty on donations of Covid related materials like oxygen concentrators, cylinders, cryogenic storage tanks and Covid related drugs from organisations to companies.
Costlier to Consumer: FM on GST exemption
Presently, domestic supplies and commercial imports of medical equipment attract a 5% GST (Goods and Services Tax), while, in the case of oxygen concentrators and Covid drugs, 12% of GST is imposed. A nominal 5% GST is in the interest of the domestic manufacturer of vaccines and in the interest of the consumer, according to the statement by the Finance Minister.
Finance Minister Nirmala Sitharaman in a series of tweets stated, “If full exemption from GST is given, vaccine manufacturers would not be able to offset their input taxes and would pass them on to the end consumer/citizen by increasing the price. A 5 per cent GST rate ensures that the manufacturer is able to utilise ITC and in case of overflow of ITC, claim the refund. Hence exemption to the vaccine from GST would be counterproductive without benefiting the consumer.”
Aligning with this, she further explained the collection process by presenting an example. According to her, If Rs 100 is collected on an item as IGST (Integrated Goods and Services Tax), Rs 50 is received by the Centre and the State each in the form of Central GST and State GST respectively. In this way of GST collection on vaccines, half is earned by the Centre and the other half goes to the State. Further, 41% of the Centre’s collection out of 50% also got devolved to the States.“So out of a collection of Rs 100, as much as Rs 70.50 is the share of the states,” the Finance Minister said in her tweets.
Covid relief items exempted from IGST
The Finance Minister mentioned a list of items that are already exempted from customs duty and health cess along with exemption from IGST. These materials are imported from Indian Red Cross for free distribution in India to combat the scourge of the second wave of the pandemic. She also mentioned that IGST is also exempted in case of goods that are imported free of cost for further, free distribution by any entity, state government, relief agency, or autonomous body on the basis of certificate issued by the concerned state government.
With effect from May 3, 2021, full exemption from customs duty has been available to a host of Covid related relief materials which includes, Remdesivir vials/injections and its APIs, Inflammatory diagnostic kits, oxygen therapy-related equipment and Covid vaccines. In order to help speed up customs clearance of Covid relief material received, IGST has also been exempted from such imports. The exemption from IGST is up to June 30, 2021.
Earlier, the Centre had decided that the State government shall appoint a nodal authority who will be authorising any entity, relief agency or statutory body, for free distribution anywhere in India.