GST exemption on Covid vaccine, related drugs: How it will impact consumers, manufacturers? Nirmala Sitharaman explains!

The government on Sunday explained how Goods and Service Tax (GST) exemption would make these covid-related products and equipment costlier for the consumers. 

In this regard, Finance minister Nirmala Sitharaman said GST exemption to domestic supplies and commercial import of Covid drugs, vaccines and oxygen concentrators would make these items costlier for consumers as manufacturers would not be able to offset the taxes paid on inputs.  

Currently, domestic supplies and commercial imports of vaccines attract a 5 per cent Goods and Services Tax (GST), while it is 12 per cent in the case of Covid drugs and oxygen concentrators. 

Sitharaman in a series of tweet said, "If full exemption from GST is given, vaccine manufacturers would not be able to offset their input taxes and would pass them on to the end consumer/citizen by increasing the price. A 5 per cent GST rate ensures that the manufacturer is able to utilise ITC and in case of overflow of ITC, claim refund. Hence exemption to the vaccine from GST would be counterproductive without benefiting the consumer.” 

While citing an example, she further said, “If Integrated GST (IGST) Rs 100 is collected on an item, Rs 50 accrues to the Centre and the States each as Central GST and State GST respectively. Further 41 per cent of the CGST revenue is devolved to States. So out of a collection of Rs 100, as much as Rs 70.50 is the share of the states. From the GST collected on vaccine, half is earned by the Centre and the other half by the States. Further, 41 per cent of Centre's collections also get devolved to the States. So states end up receiving almost 70 per cent of the total revenue collected from vaccines. 

“In fact, a nominal 5 per cent GST is in the interest of the domestic manufacturer of vaccine and in the interest of the citizens," Sitharaman said.  

West Bengal Chief Minister Mamata Banerjee earlier in the day wrote to Prime Minister Narendra Modi seeking exemption from GST and customs duty any donations of oxygen concentrators, cylinders, cryogenic storage tanks and Covid related drugs from organisations or agencies. 

The Finance Minister tweeted her response to the Chief Minister's letter, saying these items are already exempted from customs duty and health cess. Besides, Integrated GST (IGST) is also exempted on all Covid relief material imported by the Indian Red Cross for free distribution in the country, she added.