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Vaccine taxation likely to be non-issue with Centre’s new policy

Shishir Sinha New Delhi | Updated on June 09, 2021

New vaccination policy to kick in from June 21

New vaccination policy is expected to put an end to differences in GST Council over taxing jabs. The Council is set to meet and discuss tax on individual Covid relief materials soon.

“As entire procurement for a free vaccination to be done by the Centre, States will not have to worry about tax payment. At the same time, they will get their share from the GST collection as well as through the devolution formula. So, this is likely to bring down the curtain on this dispute,” a member of the Group of Ministers told BusinessLine. On Saturday the GoM submitted its report with recommendations regarding concessions/exemptions from GST on Covid-19 related individual items.

The GoM with Chief Minister of Meghalaya, Conrad Sangma as the Convenor, is believed to have left the issue of taxation on the vaccine for the GST Council while for other items it appeared to have recommended uniform 5 per cent GST for a limited period. At present vaccines attract GST at the rate of 5 per cent while other items barring ambulances, rates vary between 5 to 18 per cent. The ambulance has a rate of 28 per cent.

Under the new vaccination policy, the Centre will pay GST on procuring 75 per cent of vaccine produced in the country and that too at a much lower negotiated price. “This means the States will neither have to worry about price payout nor GST on that,” a senior government official explained.

At the same time, the States will get their share from the GST collection. Apart from that, they are also entitled to get a part of the Central’s share of GST according to the devolution formula. The official also cited Finance Minister Nirmala Sitharaman’s response to West Bengal Chief Minister Mamata Banerjee last month, when the former had mentioned that GST is paid on the government supplies by the government. From GST collected on the vaccine, half is earned by the Centre and the other half by the States. Further, 41 per cent of the Centre’s collections also get devolved to the States. So, “States end up receiving almost 70 per cent of the total revenue collected from the vaccines,” Sitharaman had said.

GST on the vaccine has been a contentious issue. The Centre is repeatedly saying that exemption from GST will hurt end consumers. “A 5 per cent GST rate ensures that the manufacturer is able to utilise ITC and in case of overflow of ITC, claim the refund. Hence exemption to the vaccine from GST would be counterproductive without benefiting the consumer,” Sitharaman had said earlier. Even the GST Council’s panel, Fitment Committee, also agreed and recommended no change in the rate for the GST Council meeting which took place on May 28.

Even there were suggestions to bring vaccine under zero rated supply category. This means there will be no GST on the product, but the supplier or manufacturer will get a refund for taxes paid on inputs. However, the Centre did not agree on this suggestion and argued that zero rated supply category is only for export and not for domestic consumption. As there were a lot of differences on the taxability of on other individual Covid relief materials as well in the GST Council meeting, it was decided to form a GoM.

Published on June 09, 2021

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