GST cuts on several Covid essentials; no change in tax on vaccines

Centre to share 70% of vaccine revenue with states, says FM Sitharaman

The Goods and Services Tax (GST) Council, at its “single-agenda” meeting, on Saturday decided to retain the GST on Covid-19 vaccines at 5 per cent. However, it temporarily slashed the tax rates on most supplies and also exempted drugs for treating the black fungus.

The Council decisions are in line with the recommendations made by a Group of Ministers (GoM), which was mandated to examine tax exemption and concessions on various Covid items including vaccines, drugs, and equipment. The GoM which submitted its report early this week recommended keeping rates on Covid vaccines unchanged, owing to the issue of multiple rate structures for procurement. 

“When Centre is purchasing and paying GST too on Covid vaccines and they are being given free of cost to the public, the GST rate will make no difference or impact on the people," said Finance Minister Nirmala Sitharaman after the meeting.

She further added: "It was felt that the GoM's recommendations have brought substantial change. Tax rates on many Covid items have been reduced from 18 per cent to 5 per cent, from 12 per cent to 5 per cent. The GST council largely agreed to go with the recommendations, except for some slight tweaking,” she added. 

On sharing vaccine revenues with states, the Union minister said that the Centre will buy the 75 per cent vaccine as announced and will pay its GST too. But 70 per cent of income from GST will be shared with states.

"Some of the states pitched for zero tax on Covid relief items which were not taken for consideration," said Chhattisgarh Finance Minister T S Deo. Some states also raised issues with respect to the compensation period, but Council decided to have a separate meeting on it, Deo added. Sources said that some states pushed to raise states' borrowing ceiling to 5 per cent for the current financial year.

Covid essentials for which tax rates have been reduced include medicines, oxygen, concentrators, related medical devices, testing kits, related machines and other relief items. GoM had suggested temporarily reducing the rate to nil and 5 per cent on a majority of items including imports and domestic supplies of Covid-19 medicines and materials, including medical oxygen, oxygen concentrators, ventilators, pulse oximeters and testing kits and extend the same till August. But the Council decided to extend the move till September 30. 

"GST rate cut on Covid related items is a step in the right direction. It is likely that the situation will be reviewed around September and if required, the rate cut will be extended for a further period. The sharing of revenue from GST on Covid vaccine by the Centre with States is also a good move and will help the States financially," said Rajat Bose, partner, Shardul Amarchand Mangaldas & Co.

While GST on Tocilizumab and Amphotericin B (a medicine to treat black fungus) were slashed to nil from 5 per cent, the rate on Remdesivir and anticoagulants like Heparin is lowered from 12 per cent to 5 per cent. The Council stated that tax cuts are valid till September 30, and can be extended further upon nearing the deadline. Based on advice and states' inputs, whether to extend further will be further considered by the GST Implementation Committee after eliciting opinions, Sitharaman said.

Tax on medical grade oxygen, oxygen concentrators, ventilators, BiPAP machines and high flow nasal cannula (HFNC) devices has been cut to 5 per cent from 12 per cent. Also, tax on Covid testing kits has been brought down to 5 per cent from 12 per cent. Pulse oximeters, hand sanitisers, temperature check equipment too will attract lower 5 per cent tax and will be applicable immediately.

“The GST council's decision to not cut GST rate on vaccines is a positive one considering that it will not disturb the principle of fungibility of credit under GST and thereby not lead to cost increase arising from loss of credits. Steps such as zero rating with credits or full abatement with credit etc. could have also lead to an aberration under the GST laws. At the same time the government has ensured that people are not burdened with the vaccine /GST cost by picking up the same, except where it may not matter viz. purchases by private parties,” said Ritesh Kanodia, partner, Dhruva Advisors LLP.

In its previous meeting on May 28, the GST Council referred the decision over the tax rates on Covid vaccines to a GoM. The GST Council headed by Meghalaya Deputy Chief Minister Conrad Sangma, submitted its report on GST concessions on Covid essential items, and also recommended lowered rates on most items.