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Home / Economy / How states’ call for vaccine tax exemption goes against GST philosophy

NEW DELHI: The demand from several state governments to exempt covid vaccines from Goods and Services Tax (GST) will be the litmus test of the key goal the indirect tax reform of 2017 sought to achieve - taxation of the value addition at each stage of supply.

The principle of value added tax seeks to prevent taxes getting embedded in the price of items, which makes the industry less competitive.

States including West Bengal and Punjab are asking for tax relief on vaccines and other medical supplies beyond what is normally possible within the principle of GST—outright exemption of the final product which leads to producers getting stuck with input tax credit or zero rating of tax on the finished product which the law does not provide for at the moment.

Accepting these demands may amount to going against the tide as far as streamlining of taxation is concerned but according to the states demanding these, the once in a century pandemic warrants going beyond technicalities. West Bengal finance minister Amit Mitra said in a letter to union finance minister Nirmala Sitharaman on Tuesday about the need for the Council to transcend technicalities and bureaucratic approaches in addressing the covid crisis for its effective management.

Mitra proposed zero rating of GST for all covid-relevant materials, equipment, drugs and vaccines. This, the minister said, will allow manufacturers and the entire supply chain entrepreneurs to avail of input tax credit and therefore, there would be no adverse impact on prices for the consumers, Mitra said. But that may amount to refunding the taxes paid on raw materials and services, to producers.

The Council is widely expected to take a call on these demands at its meeting that is currently underway. Given that health is a state subject and bringing down cost of treatment is a public interest of importance to state administrations, the suggestions are likely to get support from many states.

Congress Party leader Priyanka Gandhi supported these demands in a tweet saying that GST should be removed from 15 medical items which currently attract 5-18% tax.

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