India rules out GST waiver for businesses to fight virus woes

India’s Finance Ministry has ruled out GST waiver or deference to businesses as part of the economic relief package to help them cope with the situation arising in the wake of COVID-19 pandemic and the resultant nationwide lockdown.

In discussions within the ministry, it has been said that Goods and Sales Tax (GST) exemption or deferral is not required as it would not given any benefit to industry but seriously impact the revenues of both the states and the Centre.

With the Centre announcing a mega relief package of Rs20 lakh crore as part of the Atmanirbhar Bharat Abhiyan, there have been oft-repeated demands for the GST wavier, this time for a period of six months. The argument given is that GST exemption would lead to revival of demand due to reduction in prices and hence benefit in the fight against COVID-19.

The government has provided exemption and moratorium on payment of various taxes and debt as part of the package.

Contrary to what is being suggested, government sources said on the condition of anonymity that GST exemption would seriously jeopardise the industry’s interests and not result in any significant gains to consumers.

Therefore, there is no point to exempt businesses from this tax that would lead to blocked input tax credit (ITC), resulting in increase in manufacturing cost and a higher price for consumers.

“Hopefully, the Centre is not considering the demand. Exemption of GST on the final product is never a good idea. It distorts the value chain. It does not necessary lead to reduction in prices. In fact, it adversely impacts domestic industry,” Najib Shah, former chairman, Central Board of Indirect Taxes and Customs (CBIC), told IANS.

The issue for GST exemption has surfaced particularly with respect to items needed in the fight against the pandemic: Ventilators, personal protection equipment (PPE), Covid-19 test kits, sanitisers, etc.

At present, the liability of the inputs “be it 5% or 12% or 18%” is more than offset when discharging the 5% or 12% GST liability on PPE or ventilator, the entire liability being ‘paid’ by the credit of taxes accumulated at the earlier stages of manufacture.

If GST is exempted, this credit facility will be unavailable, leading to higher final price of the equipment.

In the past also, when the GST exemption on sanitary napkin was allowed, it led to similar hardship for domestic manufacturers of sanitary napkins. Later, domestic industry complained of adversity.

It is also equally important to keep in mind that GST waiver provides much larger incentive for imports because imports do not come with any baggage of input side taxes compared with the domestic supply.

GST provides a level playing field to domestic industry vis-a-vis the imports.

Illustratively, waiver of tax on a mobile would mean that domestically produced mobile phone has suffered the taxes on its inputs, while the imported mobile phone does not. Hence, imported mobile would be cheaper, making the domestic one non-competitive.

“Any decision to review the GST rates cannot be taken unilaterally by the central government. It is the recommendation of the GST Council that prevails in respect of GST rates. With the situation of dire economic crises and states requiring resources more than ever to deal with the post Covid-19 pandemic situation, the Council may not have comfort of this option. It is an option that causes hardship to the businesses and the state finances, while providing virtually no relief to customer in the first place.”

States GST revenue may see steep fall of 80-90 per cent in April, the first full month of lockdown that saw business and economic activity coming to a standstill.

Meanwhile, Finance Minister Nirmala Sitharaman said on Saturday that the economic package announced by the Centre to help revive the economy amid the coronavirus pandemic is not different from that announced by the other countries, but may vary in proportion.

In an interaction with BJP national spokesperson Nalin Kohli, the finance minister said that the packages announced by other nations were studied and it was found that all the other counties brought together a basket of fiscal, monetary and central bank’s liquidity measures, as India has done.

“We are not at all different from them. The proportion may vary,” she said.

“When developed countries have certain institutions, it’s easy for them to go through one route and play less on the other route. India has a great advantage in terms of technology and transfer of cash is possible, and that’s why through the Garib Kalyan Yojana we could infuse cash into the hands of the people through their Jan Dhan accounts,” the finance minister said.

She also denied the criticism that the government has not paid attention to the middle class.

Further, on the criticism by some state governments over lack of attention from the Centre, Sitharaman said: “It’s completely untrue and not acceptable at all.”

“The assumptions made in the Budget are already in a state where we will have to review them. Every assumption made in the Budget 2020-21 is at a stage where unless I review them, they are not going to hold good.”

Indo-Asian News Service