GST Council Meet Highlights: Covid-19 relief material, black fungus drug exempted from tax; return filing simplified

"Falling short on public expectation, this GST Council meeting ended up sorting issues regarding compensation cess amongst constituent members. Key issues impacting the industry and the public yet to make it to their discussion," said Ayush Mehrotra, Partner, Khaitan & Co.

Finance Minister Nirmala Sitharaman added that late fees have also been rationalised. "The rationalised late fee and the decision to reduce the maximum amount of late fee for small taxpayers will come into effect for future tax periods. This will provide a long term relief to small taxpayers," she added.

The finance minister today said that taxpayers can now file their pending returns and avail the benefits of this Amnesty scheme with reduced late fees.

"The Annual Return filing will continue to be optional for FY 2020-21 for small taxpayers, having a turnover less than Rs 2 crores while reconciliation statements for 2020-21 will be furnished only by those taxpayers whose turnover is Rs 5 crores or more," said Finance Minister Nirmala Sitharaman.

The finance minister today said that the Centre will borrow Rs 1.58 lakh crore to compensate states for the loss of revenue from GST. 

The government is constantly engaging with vaccine manufacturers across the globe, Finance Minister Nirmala Sitharaman said today. She added that vaccine production will increase in the coming months.

Finance Minister said that there would be a special meeting to discuss the issue of compensation cess. The meeting will discuss the idea of extending the compensation access beyond July 2022.

Finance Minister said that the annual return filing has been simplified by the GST Council.

Group of Ministers will be formed to discuss and decide on the reduction in GST on covid related items. GoM will submit its report by June 8.

Finance Minister said that the GST Council has decided to exempt drug used to fight black fungus from GST.

GST Council decided to exempt IGST on free covid related supplies, finance minister Nirmala Sitharaman said.

The issue of covid related items was discussed in detail. Council decided to exempt the import of relief items even if purchased to be donated to the government. This exemption extended till August 31, 2021, said Finance Minister Nirmala Sitharaman.

The 43rd GST Council meeting has ended. Finance Minister Nirmala Sitharaman will announce the key decisions soon. 

States have proposed rates cuts for covid testing kits, oxygen concentrators, life-saving drugs, and vaccines.

Zero tax rate on covid-related material has been ruled out at the 43rd GST Council meet, CNBC TV18 reported today.

GST Council to meet again in a few days, CNBC TV18 reported. The GST Council will then deliberate on taxes on covid treatment-related material.

GST rate of 5% has been maintained on covid-19 vaccines, CNBC TV18 reported. Some states had asked for this to be reduced.  

GST Compensation issue discussed at the GST Council meeting today, CNBC TV18 reported. 

"Impact of GST on essential medicines and equipment required for fighting the pandemic can be effectively resolved by treating them as zero-rating those supplies. Any proposal for tax exemption of these will only provide partial relief as the GST paid across the supply chain will become a cost," said Ayush Mehrotra, Partner, Khaitan & Co.

"The GST Council meeting comes at an opportune time when both, the industry and the public is struggling with the stress of the pandemic. While the industry seeks compliance exemptions, the general masses would look out for reduction of tax impact on essential medicines and equipment," said Ayush Mehrotra, Partner Khaitan & Co.

Sikkim has proposed a covid cess to be levied at the GST council meeting being held today, CNBC TV18 reported. Reports suggest other states too have backed the same.

Today’s meeting is also being attended by five new members. Finance ministers of Assam, Bihar, Kerala, and Tamil Nadu, and Puducherry Chief Minister Rangaswamy are attending their first-ever GST Council meeting.

"A concessional GST rate of 1% can be levied for COVID-19 vaccines. Suppliers would be allowed GST credit benefit, which could be claimed as refund under 'inverted duty structure refund', typically claimed by pharmaceutical companies," said Saket Patawari, Executive Director–Indirect Tax, Nexdigm.

Priyanka Gandhi Vadra has asked the Finance Minister to remove GST imposed on life-saving medicines and critical equipment being used to fight the coronavirus pandemic. Taking to Twitter, the Congress general secretary shared a list of items with the GST rates imposed on them, calling for the removal of the tax.

"The GST Council meeting today is happening after a long break. The meeting happening for the first time after October 2020, is in the background of the raging second wave of the pandemic. In line with this, the most important agenda of today’s meeting will be exemptions or concessions on various medicines, medical equipment and health services to support the fight. Further considering the number of petitions filed in High Courts and the Supreme Court, there is an expectation that relief will be given for import of oxygen concentrators and similar items. Additionally, there is also a growing demand for extension of the compliance deadlines and considering the lockdowns in different states, there is an expectation that some relief will come on this front," Shashi Mathews, Partner, IndusLaw.

"The GST supply chain can remain under tax at 5%. However, this can be separately refunded back to the manufacturers or the suppliers selling to unregistered customers, similar to the one allowed in case of exports but the current GST legislation may not allow such refund. Hence, it can be separately provided by the Government outside of GST legislation if we have to reduce the impact, like a special incentive package/scheme. This is subject to non-collection of said GST from such unregistered customers," said Saket Patawari, Executive Director–Indirect Tax, Nexdigm.

The second wave of covid-19 and the resultant lockdowns are likely to impact the revenues of state governments. This could lead to states asking for a higher compensation from the Central government.

'Under value added tax like GST, exemption may have negative impact as typically credit on inputs would not be available thus becoming a cost for the business. Further, it may result in disputes on which ones to be exempted and which ones should not be. Exempting the supply chain could be counter-productive,' Saket Patawari, Executive Director–Indirect Tax, Nexdigm.

GST is levied at the rate of 5% on vaccines and 12% on Covid drugs and oxygen concentrators for domestic supplies and commercial import of these items. Various state government have asked that exemption be provided to vaccines and other good and services that are important for the fight against covid-19. 

~ Ministry of Finance 

News agency PTI report that the Fitment Committee on GST rates, comprising tax officers of Centre and states, has given its report to the Council listing out the pros and cons of waiver and zero-rating of Covid vaccines, drugs and other equipment. Exempting final products from GST would deny manufacturers the option to claim the benefit of the input tax credit on raw materials and hence not much benefit accrues to consumers.

Punjab, which was seeing GST revenue shortfall of close to 50% of the assured revenue, fears that its shortfall will further widen to 60% in FY22, the state’s finance minister Manpreet Singh Badal has said in a letter to union finance minister Nirmala Sitharaman ahead of the GST Council meeting on Friday.

Read full story

In the month of April, GST Collections stood at Rs 1.41 lakh crore, a record high. In March, GST collections were at Rs 1.23 lakh crore. 

In a letter to Sitharaman on May 12, West Bengal finance minister Amit Mitra had written that the Centre’s ‘estimate’ of Rs 1.56 lakh crore as GST compensation fund shortfall for FY22 will need to be revised upward again. “Due to Covid Wave-2 and lockdowns, the compensation will be much higher than what was projected earlier,” Mitra wrote. Many opposition states including Kerala want the Centre to borrow to bridge the shortfall in compensation cess this year as well.

“A deeper analysis is required to decide whether a GST exemption will actually decrease the price of vaccine or not, as counter-intuitive as it may appear. Ideally, a low nominal GST rate of 0.1% could potentially lead to a lower price for vaccines,” said Sandeep Jhunjhunwala, partner, Nangia Andersen LLP.

“If full exemption from GST were given, the domestic producers of these items would be unable to offset taxes paid on their inputs and input services and would pass these on to the end consumers by increasing their price,” finance minister Nirmala Sitharaman had said on May 9, in her response to West Bengal chief minister Mamata Banerjee’s letter on the subject to Prime Minister. Banerjee in her letter had sought exemption from GST/Customs duty and other duties and taxes on some items and Covid-related drugs.

State Finance Ministers are expected to raise concerns around compensation shortfall. The Council may deliberate on a likely higher shortfall in GST compensation cess receipts in FY22 with many states demanding that the Centre borrow and transfer the amount to states to bridge the gap like it did last year.

The GST Council is likely to discuss the tax rate on vaccines during its meeting. Various state government have already demanded that GST exemption for vaccines. However, the government has underlined issues of input tax credit if vaccines are exempted.