By Rahul Renavikar
It has been more than six months considering the fact that the GST Council last met to go over tax policy matters. Never in the previous, considering the fact that its inception in 2017, has there been such a huge gap amongst two GST Council meetings.
After effectively overcoming the compensation cess imbroglio, there has been no meeting so far to go over the techniques for tweaking the tax policies that can support the nation combat the catastrophic second wave of Covid -19. There have been devastating stories of loss of human life, and the financial influence of the second wave would be seen in the coming months. Many states have independently petitioned the central government to convene the next GST Council meeting and, so far, there has been no announcement of a date.
Indeed, there have been quite a few pressing requires and priorities that the government necessary to tackle in the intervening period. It is about time that the GST Council met it is crucial that there is no additional delay.
There has been a developing clamour for exempting the Covid-19-connected vaccines, drugs, medicaments, healthcare devices, and so on, from charge of GST. On the face of it, exempting any provide of goods/services from the levy of GST seems to be customer-friendly as no GST is payable on such supplies. However, in reality, the buyers may well finish up in carrying the burden of particular quantity of GST, thanks to the cascading impact of the GST exemption.
The crux of any VAT/GST method is the potential of the purchaser (in a enterprise-to-enterprise provide situation) to claim credit of the tax paid on the purchases when discharging the tax payable on the supplies effected. Any break in this chain will outcome in an improve in the expense of goods/services supplied. Hence, in the end, the final customer will be forced to bear the burden of the tax applied at each stage of worth-add, as he/she cannot claim any input tax credit as the goods/services are consumed by him/her and are not utilised for any furtherance of enterprise.
It is hence prudent that rather than exempting the provide of goods/services, specifically these exactly where GST is applicable on inputs, input services and capital goods that are utilised in provide of such goods/services, a GST at a decrease price is levied so that the input tax credit is out there via the worth-chain and the cascading impact is totally neutralised, in the end paving the way for decreased costs to the finish-customer.
Another technique would be to zero-price such supplies exactly where there is no tax payable on the output side and complete input tax credits are out there of the tax paid on inputs, input services and capital goods utilised for provide of goods/services. This totally nullifies the cascading impact.
Typically, export of goods/services are zero-rated exactly where an exporter gets a refund of the input taxes paid, topic, of course, to fulfilling of several circumstances.
There is no precedence in India exactly where domestic supplies (such as imports) have been zero-rated. We come across quite a few examples across the globe exactly where domestic supplies (such as imports) have been zero –rated to make the costs economical to finish-buyers. India must take a cue from this established international practice and showcase its potential to go all out and do what it requires to provide relief in these painful instances.
There is practically nothing more valuable than saving a human life, and the government must not shy away from taking bold and ‘never-taken-before’ choices.
The GST Council requires to promptly meet and take the selection of zero-rating the supplies for goods and services that are aiding the fight against Covid-19 pandemic. This will provide additional relief to the buyers as the advantage of the input tax credit has to be passed on to the buyers in order to be compliant with the anti-profiteering measures. The GST collection, fortunately, has been robust for the previous handful of months, and, in truth, last month, it touched a record level (Rs 1.41 lakh crore).
There has to be area made for absorbing this further burden for the sake of the patients who are battling for their lives in several cities/towns/villages across the nation. The government can decide on to have this mechanism for a restricted period till the Covid-19 pandemic ends. Extraordinary instances demand extraordinary measures!
The author is Managing Director, Acuris Advisors Pvt. Ltd
Views are individual