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FM replies to Mamata: GST exemption on Covid drugs, vaccines to make them costlier

If GST exemption is granted for domestic supplies and commercial imports of Covid-related drugs, vaccines and oxygen concentrators, manufacturers would not be able to offset the taxes paid on inputs and pass it on to consumers in terms of higher prices, she said.

By: ENS Economic Bureau | New Delhi |
Updated: May 10, 2021 7:18:18 am
Nirmala Sitharaman

Responding to West Bengal Chief Minister Mamata Banerjee’s letter to the Prime Minister seeking GST exemption on Covid-19 vaccines and supplies, Finance Minister Nirmala Sitharaman on Sunday said such exemption on domestic supplies and commercial imports would make these items costlier for consumers. If GST exemption is granted for domestic supplies and commercial imports of Covid-related drugs, vaccines and oxygen concentrators, manufacturers would not be able to offset the taxes paid on inputs and pass it on to consumers in terms of higher prices, she said.

“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% GST rate ensures that the manufacturer is able to utilise ITC (input tax credit) and in case of overflow of ITC, claim refund. Hence exemption to vaccine from GST would be counterproductive without benefiting the consumer,” Sitharaman tweeted.

“In fact, a nominal 5 per cent GST is in the interest of the domestic manufacturer of vaccine and in the interest of the citizens,” Sitharaman said.

Banerjee in her letter dated May 9 to PM Narendra Modi said many organisations, individuals and agencies, which are engaged in donation of Covid related drugs, oxygen concentrators, cylinders, cryogenic storage tanks and tank containers, have approached the state government to consider exemption of these items from customs duty/State GST/ Central GST/ Integrated GST (IGST).

Sitharaman said that if IGST of Rs 100 is collected on an item, states and Centre get Rs 50 each as SGST and CGST, respectively. In addition, 41 per cent of the CGST revenue is transferred to states as devolution. “So out of a collection of Rs 100, as much as Rs 70.50 is the share of the states,” she said.

On the GST revenues collected from sale of vaccines, the FM said half the amount is earned by the Centre and the other half by the states. Along with this, 41 per cent of Centre’s collections also get devolved to the states, resulting in almost 70 per cent of the total revenue collected from vaccines being given to states.

Sitharaman said these items are already exempted from customs duty and health cess.

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