Finance Minister Nirmala Sitharaman on Sunday said if full exemption from GST is provided to domestic supplies and commercial imports of COVID drugs, it would have an adverse impact on their cost. The manufacturers would then not be able to offset the taxes paid on inputs and the supplies would become costlier.
Sitharaman tweeted that if domestic producers of vaccines are given full exemption from GST, they would be unable to offset the input taxes and hence pass them to the end consumer by increasing the price. A 5 percent GST rate ensures that the manufacturer can utilize ITC and if it overflows, claim a refund.
She further added that if IGST (Integrated GST) of ₹100 is collected on an item, it implies that ₹50 flows to the Centre and the States each as per Central and State GST respectively. Further 41% of CSGT is devolved to the States as well. Overall, out of a collection of ₹100, ₹70.50 is the State’s share, receiving almost 70 percent of the total tax revenue collected from vaccines.
She stated that a nominal 5 percent GST is in the favour of the domestic manufacturer of vaccines and also the citizens of India.
This series of tweet came in response to a letter by West Bengal’s Chief Minister Mamata Banerjee to Prime Minister Narendra Modi in which she demanded seeking exemption from GST and customs duty on any donations of oxygen concentrators, cylinders, cryogenic storage tanks, and COVID related drugs from various organizations or agencies.
The Finance Minister answered that the items mentioned in her letter are already exempted from customs duty and health cess. Adding to these, Integrated GST (IGST) is also exempted on all COVID relief material imported by the Indian Red Cross or any other entity, state government, relief agency, and an autonomous body for free distribution in the country.
The government on May 3 has already exempted from customs duty import of a host of COVID-related relief materials such as medical grade oxygen, oxygen therapy-related equipment, cryogenic transport tanks, Covid vaccines, and various medicinal drugs including Remdesivir injection and its APIs, Inflammatory diagnostic (markers) kits.
The new rule says that the goods for free distribution in India can be imported free of cost by a state government or any entity, relief agency, non-government organization, or any authority.