The government is not in favour of granting Goods and Services Tax (GST) waiver, as has been demanded by various sections of the industry. Finance Ministry officials said GST waiver will have serious adverse implications on state finances, businesses would suffer and consumers would also be hit by price rise.
“In the past also, when the GST exemption on sanitary napkins was allowed, it had led to similar hardship for domestic manufacturers of sanitary napkins. Later, the domestic industry complained of adversity. So was the case with GST exemption on PPEs, mask, etc. The GST exemption would lead to blocked input tax credit (ITC) resulting in increase in the cost of manufacturing and a higher price for consumers,” an official said.
While GST exemption would make output GST as zero, the ITC would not get utilised and would get added to the cost, which will harm the industry and also the consumers which will not help in reviving the demand. Also, the compliance burden is expected to increase for manufacturers who would be required to maintain separate accounts for inputs and capital goods used for the production of the item.
Officials said many manufacturers, dealers, wholesalers, retailers have piled up inventories with input tax credit worth several lakh crores during the lockdown to counter COVID-19 pandemic and so, a waiver would result in increase in prices for consumers.
They further said the GST waiver provides incentive for imports, which do not have input taxes as compared to domestic supplies making imported goods cheaper than locally produced goods. Any final decision regarding changes in rates or a possible waiver will need to be approved by the GST Council.
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