GST Council to meet on May 28 – exempting vaccines may top agenda

States seen seeking higher compensation fearing revenue shortfall due to Covid-2

The GST Council will meet after almost a gap of 8 month on May 28.

Finance Minister Nirmala Sitharaman “will chair the 43rd GST Council meeting via video conferencing at 11 am in New Delhi on May 28,” Office of the Finance Minister said in a tweet. It also mentioned that the meeting will be attended by Minister of State in Finance Ministry Anurag Singh Thakur besides Finance Ministers of States & UTs (Union Territories of Delhi, Puducherry and Jammu & Kashmir with assemblies) and senior officials from the Centre and States.

Although the agenda of the meeting is not known, it is expected that it will discuss GST rates on COVID vaccines and relief materials beside GST compensation. There have been demands for exempting COVID related goods. Sithraman has ruled out exempting vaccines from GST by saying it will hurt consumers as producers will pass on cost increase on account of no input tax credit (ITC). There is also demand for exempting IGST (Integrated Goods & Service Tax) on oxygen concentrators. There, too, Finance Ministry has not given any indication.

The last meeting of GST Council took place on October 5 which was extended to October 12. Earlier this week in a letter to the Sitharaman, Finance Minister of West Bengal Amit Mitra emphasised on para 6 of the ‘Procedure and Conduct of Business Regulations of the Goods and Services Taxes Council.’ It provides that the Council shall meet at least once in every quarter of the financial year. He said that the meeting not taking place every quarter is not aligned with the very principle of cooperative federalism and demanded that the meeting be called immediately.

Covid Wave-2

Prior to Mitra, Finance Minister of Punjab and Chattisgarh pressed the demand for a meeting saying that many urgent matters are pending, of which the most important is the COVID related reliefs. The Centre has maintained that due to assembly elections in States such as West Bengal, Tamil Nadu and Assam, the meeting could not take place. Now, post-election, all these States and Union Territory (with assembly) of Puducherry are having a new government in place.

States are also seeking higher GST compensation shortfall as the second wave of the pandemic coupled with local lockdowns have affected business activities and now the apprehension is that revenue will come down. In fact, a report by the Finance Ministry said that the second wave of pandemic has put a downside risk to economic growth for the first three months (April-June) of current fiscal. Many of the economic research agencies also feel that the first half of the fiscal is expected to face some problems on the economic front and they have lowered growth projection for the entire fiscal from double digit to single digit.

Mitra, in his letter using Centre’s projection, said that GST compensation shortfall is expected to be to the tune of ₹1,56,164 crore during FY 2021-22. According to him, this is without taking into consideration the impact of COVID Wave-2. “Now due to COVID Wave-2 and lockdowns, the compensation will be much higher than what was projected earlier. This undoubtedly deeply distressing,” he had said.

During FY 2020-21, Centre borrowed around ₹1.1 lakh crore and passed it as back-to-back loan to States for GST Compensation shortfall. In the last meeting of the GST Council, compensation formulae was the main topic of discussion.