Image Credit: Business Today
A variety of issues will be on the table at the 43rd meet of the GST Council, chaired today by Union Finance Minister Nirmala Sitharaman. Considering the spread of the second wave of Covid-19 in the country, tax waivers for medicines & medical equipment and ensuring compensation for states will be among the key matters for discussion. The council, after a gap of seven months, is meeting for the first time in this financial year.
GST Compensation:
The rapid spread of coronavirus from the beginning of April prompted several states across the country to impose lockdowns or other restrictions like night curfews and weekend closures. The restrictions have led to a steep fall in revenue collections and the states are estimated to be eligible for GST compensation of Rs 2.69 lakh crore. The Council will have to devise a mechanism for giving this amount to the states. The issue of GST compensation was hotly debated between the centre and the states last year and the situation may be no different this time. Some states have also demanded GST compensation to be extended beyond July 2022 in view of the economic uncertainty created by the pandemic.
Tax reduction on Covid essentials:
Another issue related to the pandemic is the demand to reduce taxes on items essential to fight Coronavirus like medicines and medical equipment. Several states have come together to demand zero tax rate on such items. However, FM Sitharaman has said that a zero tax rate will be harmful as the manufacturers will not be able to offset their input taxes, causing the price of such Covid-19 essential items to rise. Hence, Associate Partner at the White & Brief Advocates and Solicitors, Prateek Bansal cam forward with the explanation that the Council may keep COVID-related medicines and equipment under the ‘zero-rated supply’ so as to allow seamless flow of input tax credits. He stated, “The aforesaid will require amendment in IGST Act to the extent of expanding the definition of zero-rated supply.”
Among non-pandemic measures, the Council could deliberate on reducing the number of tax slabs, which has remained a key demand of the industry for years. In addition, we can expect a reduction of tax on two-wheelers in order to increase their sales.
In view of the pandemic, the council can also decide to further extend the deadlines for many GST compliances. A decision on allowing certain industries like hospitality and real estate to avail input tax credit is expected considering that they have been badly affected since the start of the pandemic.