On top of GST Council's 'To Do' list: COVID relief, States' cash woes

Experts warn second wave more lethal for businesses too, moot an urgent rescue act

The Goods and Services Tax (GST) Council, meeting this Friday, after a gap of over seven months, should prioritise giving relief on the taxes levied on COVID-19 vaccines and critical medical supplies, and rationalise GST rates to provide relief to sectors that are worst hit by the second wave, according to regulatory experts.

A mechanism for paying States their compensation dues for this year shall also be a knotty issue for the Council to figure out, while little headway is expected on more contentious problems such as bringing petroleum products under the GST regime to reduce the burden of high retail fuel prices on the common man.

The Council should consider reducing the tax rates or zero rating the GST on essential material to combat COVID, from hand sanitizers to oximeters and oxygen concentrators, said Saloni Roy, senior director at Deloitte India. COVID-related expenditures incurred by employers for the welfare of employees and their families may also be considered as input tax credit, she said.

“Individuals and companies importing oxygen concentrators, oxygen cylinders, regulators and rakes are looking for exemptions or credits on these medical devices as in most of the cases, the imports are in the public interest or for donation to state governments and NGOs”, said Abhishek Rastogi, who is arguing writs on these issues in Bombay and Delhi High Courts.

The Centre has staved off requests from States to reduce the 5% GST on vaccines and other GST levies on COVID relief material, but told the Delhi High Court last week that all requests for exemptions will be placed before the Council.

Last Friday, the Court held the imposition of 12% Integrated GST on imports of oxygen concentrators for personal use or received as gifts from overseas, as ‘unconstitutional’ and quashed the tax.

Terming the Council’s meeting most critical amid the second wave’s impact on the economy, EY tax partner Abhishek Jain said providing GST concessions and exemptions to Covid vaccines, and other equipment, as well as allowing input tax credit for firms undertaking vaccination drives or providing oxygen concentrators to their employees need to be taken up.

States’ burden

With five new finance ministers in the Council from the States with newly formed governments, and three of them not aligned with the BJP-led government at the Centre, the equations in the Council would be different from its last meeting in October.

The meeting on October 12, 2020, had ended without a consensus with several Opposition States refusing to accept the Centre’s compensation formula for last year as revenues tanked in sync with the economy due to the national lockdown.

States are still owed ₹63,000 crore from last year’s dues and GST cess collections are unlikely to meet this year’s compensation dues as well, following the spate of lockdowns across several States over the past two months.

“Needless to say, the States are desperate for funds at the moment since the Centre has largely shifted the onus of improving the health infra and vaccination drives on the State Governments,” pointed out Rajat Bose, partner at Shardul Amarchand Mangaldas & Co.

The Council should decide on measures to address the impending revenue shortfall and consequent shortfall in compensation cess for the States, he emphasised.

Apart from the early release of outstanding dues, States may also press for a parley on a possible extension of the five-year period for which they were guaranteed compensation under the GST regime, said Niraj Bagri, partner at Dhruva Advisors LLP

Relief for Industry

“Unlike last year, the second wave has proved to be much more lethal, even for businesses, and hence, any short-term measure may not yield desired results,” warned Mr Bose, who hoped the Centre and States come up with some sustainable measures to rescue industry.

While industries such as entertainment, hotels and tourism are impacted badly due to COVID and need relief measures, even sectors that continue to operate need support on many fronts, including getting due refunds quicker to free up their working capital needs.

“GST refunds for several exporters including gems and jewellery and IT sector are stuck up which must be processed quickly which will infuse liquidity and also give an impetus to our exporters. The gems and jewellery industry in our view has over Rs 1,000 crore stuck in past accumulated input tax credits and due to backlog in refunds,” said Siddharth Surana, Advisor – Strategy and Business Transformation, RSM India

“The second wave of COVID has impacted viability and sustenance of MSMEs and sectors like hospitality and aviation. The GST Council should consider reducing the GST rate for composition dealers, including the special rates for restaurants (presently at 5% with no input tax credit) and travel and tour operators for the 6 months period from April to September 2021,” he suggested.

“The issues of exporters need immediate attention and I hope a decision will soon be taken on fixation of remission rates under the RodTEP scheme and export incentives related to 2020 for which exporters are unable to apply," said Mr Rastogi.

Apart from relief measures for the worst-hit industries, Ms Roy said there was a need for the Council to push for extended compliance time lines and a “complete waiver of interest and late fee for March, April and May”.

On May 1, the finance ministry announced some relief from GST compliances, but an exemption from late fees was introduced only for GSTR 3B for April, while delayed tax payments are not exempt from interest for the period of delay.

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