What is expected from the 43rd GST Council meeting today


Expect a showdown when the GST council sits today after nearly six months for its 43rd meeting. The agenda includes issues such as tax relief on vaccines, Covid supplies and touchy topic of compensation to the states in the event of shortfall in GST revenue.

To tax vaccine or not?

A number of states including opposition-ruled ones such as Punjab and West Bengal have demanded either full exemption or zero-rated tax on Covid vaccines. A reduction in tax on key Covid supplies like oxygen concentrators, cylinders and other protective gear is also on the agenda.

The fitment committee of the GST Council has not backed the proposal for a complete exemption on vaccines as it would mean that the domestic makers of jabs will not be able to claim input tax credits, thereby leading to increase in costs of the vaccines

The same was also conveyed earlier by finance minister Nirmala Sitharaman saying the a full exemption on vaccines is not possible as local manufacturers will end up passing on the tax burden to consumers on account of inability to claim input tax credit.

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Where is my money?

Another major issue that is likely to generate fireworks is the hit on revenues as the second wave threatens to impact the ongoing recovery process. Compensation shortfall to states could mean that they will demand a higher share.

A Bloomberg report claims the Centre may fall short on the money promised to the states. The report adds that it may have to borrow more for a second straight year to compensate states for their revenue loss due to a shortfall in the collection. The additional borrowing requirement is reportedly estimated at Rs 1.58 lakh crore ($21.7 billion) in the fiscal year. A panel on goods and services tax will meet on Friday to discuss compensation to states, among other issues.

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While the amount to be paid to states works out to Rs 2.7 lakh crore, the government reportedly is expected to muster only Rs 1.1 lakh crore.

Although GST receipts have come in at more than Rs 1 lakh crore each month for seven successive months as of April, there are worries that it will slow amid regional lockdowns implemented by most states to curb the deadly second wave of the pandemic.

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The economic costs of the recent surge in cases are rising rapidly with economic losses estimated at $74 billion, all of it contained in the second quarter, Barclays Plc said in a report to clients on Tuesday. The bank lowered its economic growth forecast by 80 basis points to 9.2% for the fiscal year.

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The Council may well take a call on a number of other issues such as correcting inverted duty structure in footwear and textiles, with the fitment committee having proposed 12% GST on footwear upto Rs 1000 and 12% GST on manmade fibre, yarn and garments, among other categories. Proposal of lowering GST on maintenance and repair operations for ships to 5% from present 18%, bringing them at par with tax rate on MRO for aircraft, may also be taken up by the Council.

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