With the second wave of COVID-19, India has finally realized that our success in the first wave was short-lived and our healthcare system needs more work than was anticipated.
The regretful collapse of the Indian healthcare services, both government-owned and privately-owned, has brought us to think if we ever cared for the health infrastructure?
The need for life-saving COVID-19 related drugs and medical equipment is rising with the rising number of cases, and unfortunately, the government has failed to meet the demand with the supply.
Since there was little price regulation, market forces of demand and supply came into the picture, raising the prices of all the products in demand. These goods range from Remdesivir injections to oxygen concentrators.
While price regulation is almost non-existent, taxes, import duties, and customs duties are imposed on all drugs and medical equipment. Know the numbers for COVID-19 related drugs and equipment in this blog.
The Tax Rates
Currently, domestic supplies and imports of vaccines attract a GST of 5%. The same percentage of GST goes a slab ahead, to 12%, in the case of COVID-19 related drugs and oxygen concentrators.
In this relation, a letter was written by the CM of West Bengal, Mamta Banerjee, demanding an exemption in GST.
Mind you, GST has three parts- State Goods & Service Tax (SGST), Integrated Goods and Service Tax (IGST), and Central Goods and Service Tax (CGST).
In intrastate transactions, part of the GST amount goes to the state in the form of SGST and the rest goes to the central government in the form of CGST. IGST comes into the picture in cases of interstate sale, for example- if a sale has been made from Bengal to Orissa.
However, the rates cannot be altered or waived by the states on their own accord, as a GST council has been put in place for that task.
On 9th May 2021, Finance Minister Nirmala Sitaraman clarified that a GST exemption will increase the costs of vaccines. But how? Let us explain.
Read Also: Some Easy And Legal Ways To Evade Taxes
The Curious Case Of Input Tax Credit
Nirmala Sitaraman claims in her statement that an exemption from GST will ultimately burden the consumers as the manufacturers will not be able to avail the benefit of Input Tax Credit.
Input tax credit (ITC) is the amount that a business pays on the purchase of raw materials and then, this amount is claimed by the manufacturer from the government, i.e. by setting off the tax liability against the tax already paid. In this situation, the manufacturer doesn’t pay tax from his pocket.
For example, the manufacturing of vaccines includes the purchase of raw materials, vials, storage services, bio-retractors, etc.
All these goods and services attract various percentages of the GST that are paid by the manufacturer and when the vaccine is ultimately sold to the final consumer, GST is collected by the manufacturer on behalf of the government.
For instance, a manufacturer spends Rs. 200 as taxes in the process of manufacturing. Assuming that the vaccine is priced at Rs. 3600, the tax levied on it, to be paid by the consumer to the manufacturer, which ultimately goes to the government treasury, is Rs. 180.
In this calculation, the amount of Rs. 200 is set off against Rs.180 as an input tax credit. However, still, Rs.20 is left for the manufacturer to pay. To cover this cost, the manufacturer will most likely shift the burden on the consumer.
However, since the vaccine is attracting GST at the rate of 5%, the manufacturer can claim an Input Tax Credit refund.
This won’t be the case if the vaccine is exempted from tax. Then, the manufacturer would be forced to shift the input tax burden on the consumers, making the product costly.
Ad-Hoc Exemption From Customs Duty And Health Cess
An ad-hoc exemption from customs duty and health cess has been provided to certain goods and services related to COVID-19 treatment. These goods include Remdesivir active pharmaceutical ingredients, medical oxygen, oxygen generators, and storage tanks amongst others.
Apart from this, an IGST exemption has also been provided for COVID-19 related goods. This ad-hoc order would enable the import of COVID-related supply free of cost, without attracting IGST, for free distribution by charitable trusts, non-government organizations, or any other entity.
Also, it must be noted that if on sale of one vial of vaccine, Rs.100 is collected as GST, Rs.50 goes to the state government and Rs.50 goes to the central government. The amount received by the central government is then devolved to states at the rate of 41%. In approximation, states receive 70% of the taxes collected from the vaccines.
While the math is difficult to do, the point is clear. For the greater benefit of the public, nominal tax needs to be imposed on the goods related to COVID-19 treatment.
However, a suggestion which remains here is that the COVID-19 related goods which fall in the 12% slab can be shifted to the 5% slab as it would give the same benefits to the general public.
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