Make Tax Concessions Viable For Covid Drugs, Vax

Context: Analyzing the implications of removing the tax on vaccines and medicines amid pandemic.

Government’s stance: The government has ignored the demand of removing the taxes on vaccines.

• This is because if the 5% GST on vaccines and the 12% GST on medicines were to be removed, the consumer would end up paying more.
• Since the manufacturers would then be denied input tax credit (ITC), they would pass it on to the consumers, who would thereby be paying more than what they are doing now.

Ways to abolish GST without hurting the consumers:

• Waiving off taxes on the entire supply chain: Instead of giving a tax waiver on the final product that the consumer buys, taxes on entire chains that go into the making of the final product can be waived.
• Make the vaccines and medicines ‘zero-rated supply’: This will make the supply chargeable at a nil rate with a refund of ITC.
  • If this were done, the manufacturer would be able to get an input tax refund on all the GST paid.
  • This facility is currently available to the exporters as also to the suppliers to special economic zones.
  • It could be a temporary measure in order to reduce serious revenue implications.
  • While it could prompt state governments in the future to seek exemptions on other items of high public interest, one can hardly decide not to do it simply because it can set a bad precedent.
  • This has already been done in the past on sanitary napkins after the protest from women’s rights organizations (reduced the rate from 12% to nil).
• Levying a nominal 0.1 per cent GST on Covid-related items: This would enable the manufacturers to claim ITC. It is already being done when exports are undertaken by merchant exporters.
  • The manufacturer pays taxes on inputs and input services, sells the goods to a merchant exporter at 0.1 per cent GST, and then gets a refund of ITC.
  • The merchant exporter can get ITC on the 0.1 per cent GST he has paid and export the goods.

Conclusion: As things stand, those asking for the abolition of GST on Covid-19 related vaccines and medicines seem to be winning the argument.