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Business News/ News / India/  Govt’s new covid vaccine policy resolves states’ GST grievances

Govt’s new covid vaccine policy resolves states’ GST grievances

The new vaccination policy has helped to diffuse a major area of tension between Centre and some of the states which have expressed their fiscal woes arising from higher spending requirements

With the Centre agreeing to procure three-fourth of domestic production of covid vaccines, the tax liability falls on the central government. Premium
With the Centre agreeing to procure three-fourth of domestic production of covid vaccines, the tax liability falls on the central government.

The central government’s decision to procure vaccines and supply them to states free of cost from 21 June has provided relief to states. This comes against the backdrop of governments of many states not ruled by the Bharatiya Janata Party having raised grievances over the 5% goods and services tax (GST) that they had to pay on all vaccines till now.

Some of this tax liability now falls on the Centre as it has announced that it will now procure 75% of the covid-19 vaccines produced domestically. At present, states have to procure 25% of covid-19 vaccines produced domestically, with the private sector taking 25%, and the Centre procuring the remaining 50%.

Half of the GST collected on any item goes to the Centre and the rest to the consuming state. Also, 41% of the Centre’s overall tax collection goes to states.

“Vaccines will be free of charge for all above 18 years of age. There shall be increased supply of vaccine too," Union finance minister Nirmala Sitharaman tweeted on Monday night.

The shift in the covid-19 vaccination policy makes it easier for the federal tax body, the GST Council, to decide on tax proposals for relief on vaccines and other locally-produced medical supplies.

A group of ministers had been set up by the Council to recommend tax rates when states demanded tax cuts on vaccines and other locally produced medical supplies needed for covid management. The group submitted its report to Sitharaman on Monday night, Meghalaya chief minister Conrad Sangma, who led the ministerial group, tweeted. The report has not been made public as yet.

States are now unlikely to have any objections on the tax rate applicable on vaccines. In the case of a few other items such as medical oxygen, oxygen concentrators, pulse oximeters, and covid testing kits, the Centre has no objection to lowering the tax rate from 12% to 5% temporarily, said a person privy to discussions in the government, requesting anonymity. A decision on these is expected shortly from the GST Council.

“With the changed vaccination policy, states’ appeal for GST relief on covid vaccines remains resolved and the only category left out is people getting vaccinated through the private sector," said Abhishek Jain, tax partner, EY.

An email sent to the Union finance ministry for comments remained unanswered till press time.

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Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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Updated: 09 Jun 2021, 12:52 AM IST
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