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Tuesday, October 26, 2021

Explained: How the GST Council tweaked rates for drugs, shifted tax liability to food delivers firms

The GST Council met in Lucknow on Friday, the first physical meeting in nearly two years. A look at the key decisions the Council made. 

Written by Aanchal Magazine , Maulshree Seth , Edited by Explained Desk | Lucknow, New Delhi |
September 18, 2021 10:56:40 am
GST Council meeting, GST, GST changes, GST Council, GST on Covid drugs, GST food delivery apps, Indian ExpressUnion Finance Minister Nirmala Sitaraman at the GST meeting in Lucknow on Friday. (Express Photo)

Rate cuts for a number of cancer and Covid-related medicines and a shift in tax payment liability to restaurant delivery aggregators such as Swiggy, Zomato instead of restaurants, were two of the key decisions taken by the Goods and Services Tax (GST) Council in its 45th meeting in Lucknow on Friday.

The Council, which held an in-person meeting after 20 months, also decided to continue compensation cess levy only for repayment of borrowed amounts beyond June 2022.

A proposal to bring petroleum products under the indirect tax regime was discussed, but it was decided to keep the proposal out of its ambit for now.

What are the key decisions made by GST Council?

Existing concessional rates, which were valid till September 30, have been extended till December 31 for Covid-19 medicines: Remdesivir (5 per cent), Tocilizumab (nil), Amphotericin B (nil), and anti-coagulants like Heparin (5 per cent). However, the concessional tax for medical equipment will end on September 30.

Reduction of GST rate to 5 per cent on more Covid-19 treatment drugs, up to December 31: Itolizumab, Posaconazole, Infliximab, Favipiravir, Casirivimab & Imdevimab, 2-Deoxy-D-Glucose, Bamlanivimab & Etesevimab.

The Council also decided to remove GST on the import of muscular atrophy drugs like Zolgensma and Viltepso, which cost crores of rupees, Sitharaman said. The GST rate for Keytruda, used for the treatment of cancer, has been cut to 5 per cent from 12 per cent.

The Council also cut GST rates on fortified rice kernels to 5 per cent from 18 per cent, and on bio-diesel for blending in diesel to 5 per cent from 12 per cent. National permit fee for goods carriage has been exempted.

GST on ores and concentrates of metals such as iron, copper, aluminum, and zinc has been increased from 5 per cent to 18 per cent, and that on specified renewable energy devices and parts from 5 per cent to 12 per cent.

Cartons, boxes, bags, and packing containers of paper will now attract a uniform 18 per cent tax in place of the 12 per cent and 18 per cent rates. Waste and scrap of polyurethanes and other plastics will also see tax going up to 18 per cent from 5 per cent currently.

All kinds of pens will be charged an 18 per cent rate, while miscellaneous goods of paper like cards, catalogues, and printed material will see GST increasing to 18 per cent from 12 per cent. The rate for carbonated fruit beverages and carbonated beverages with fruit juice will attract a GST rate of 28 per cent, plus compensation cess of 12 per cent.

IGST of 12 per cent on import of medicines Zolgensma for spinal muscular atrophy and Viltepso for Duchenne muscular dystrophy, has been waived. These drugs cost up to Rs 16 crore.

Other decisions

The Council also decided to put an end date of June 2022 to the compensation mechanism, as mandated in law. The levy of compensation cess will continue from July 2022 onwards till March 2026 to service the borrowing, which had been resorted to in order to bridge the compensation gap in the years 2020-21 and 2021-22.

The debt for making compensation payments to states is estimated to be around Rs 2.7 lakh crore, a senior Finance Ministry official said.

Finance Minister Nirmala Sitharaman said that at the previous GST Council meeting, it had been decided that beyond July 2022, the collection of cess would be for “payment of loans taken”. “That (compensation to states) ends with five years. The five-year (period) ends in July 2022. Beyond July 2022, the cess that we are collecting, as agreed in the 43rd Council meeting, was for the purpose of repaying the loan. That commences in July 2022, and goes on till March 2026 — only and only for paying the loan given to states since last year,” she said.

States were guaranteed compensation under GST for the revenue gap between actual collections and the protected amount based on 14 per cent compounded rate from base year 2015-16 for five years after the GST rollout, until June 2022. Last year, the government had decided to borrow to meet the compensation cess deficit through back-to-back loans to states.

For inclusion of fuel under GST, the Finance Minister said the Council discussed the issue only because the Kerala High Court had asked it, but felt it was not the right time to include petroleum products under GST. “It will be reported to the High Court of Kerala that it was discussed and the GST Council felt that it wasn’t the time to bring the petroleum products into the GST,” she said.

Going ahead

Effective January 1 next year, the Council has decided to make e-commerce operators engaged in restaurant services liable for payment of tax. This will essentially shift the responsibility of paying the 5 per cent GST to the aggregators from the restaurants.

The Council will also then look at rate rationalisation under the inverted duty structure, and compliance measures through e-way bill and composition schemes, for which two Groups of Ministers will be constituted. The Council has decided to set up a GoM to examine the issue of correction of inverted duty structure for major sectors; rationalise the rates and review exemptions from the point of view of revenue augmentation. “It was also decided to set up a GoM to discuss ways and means of using technology to further improve compliance including monitoring through improved e-way bill systems, e-invoices, FASTag data and strengthening the institutional mechanism for sharing of intelligence and coordinated enforcement actions by the Centre and the States,” a statement said.

To correct the inverted duty structure, GST rate changes will be made for the footwear and textiles sector, but the decision has been deferred for implementation till January 1 next year.

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