Non-BJP ruled states join hands to take on Centre in GST Council meet in conference hosted by Rajasthan

Two days ahead of the GST Council meeting scheduled for Friday, seven non-BJP states met virtually on Wednesday to build a consensus on extending the compensation regime for five years beyond 2022 besides pressing for pending compensation for the current financial year.

In the meeting hosted by Rajasthan Urban Development and Housing Minister Shanti Dhariwal, finance ministers Amit Mitra (West Bengal), T S Singh Deo (Chhattisgarh), Palanivel Thiagarajan (Tamil Nadu), K N Balagopal (Kerala), Manpreet Singh Badal (Punjab) and Rameshwar Oraon (Jharkhand) also discussed the need to grant zero rating to COVID-related relief products.

Rajasthan Chief Minister Ashok Gehlot is well known for taking on the Narendra Modi government on various issues. In the last 15 months, Gehlot has locked horns with the Union government on issues related to COVID-19 and the responsibilities of the Union government to combat the pandemic. In the process, he has almost become the voice of non-BJP ruled states on the joint responsibilities of the Union government and the states under the federal structure.

Dhariwal, who represents the state in the GST council, urged all the finance ministers to remain united on the issue of a total exemption of GST on COVID vaccines and other aids and appliances related to its treatment.

During the meeting, Rajasthan demanded the release of all outstanding GST compensation to all states at the earliest. There was a consensus that the states are facing a financial crunch because of the slowdown of economy and poor revenue collections due to the pandemic.

The states also demanded an increase by 15 percent on additional lending limits.

The Opposition has been demanding a waiver of import duty and GST on COVID vaccines and medicines.

Union Finance Minister Nirmala Sitharaman’s response to the demand of waiver of five per cent GST on vaccines and 12 per cent GST on medicines has been that consumer would actually end up paying more since the manufacturers would then be denied input tax credit (ITC).

But tax experts say that there are ways in which you can serve the purpose of abolishing GST without hurting the consumer.

Subir Roy, a senior business journalist and analyst feels that there is a solution for this. One solution he suggested is that instead of giving a tax waiver on the final product that the consumer buys, what can be done is to waive taxes on the entire supply chain that goes into the making of the vaccines or the medicine. If the manufacturer has paid no GST on inputs, the absence of ITC for GST paid on supplies bought by him does not arise.

“Another way out is to make the vaccines and medicines ‘zero-rated supply’, which is making the supply chargeable at nil rate with a refund of ITC. If this were done, the manufacturer would be able to get input tax refund on all the GST he has paid,” he said.

“This facility is currently available to exporters as also to the suppliers to special economic zones. As the exporter does not have to pay GST and so does not bill the importer GST, he gets a refund on the GST he has paid on inputs,” said Roy.