Is Government making money from COVID crisis?

Sanitizers, Face Masks, Liquid Hand washes, PPE Kits should be made Zero Duty.

Is Government making money from COVID crisis

BENGALURU (Aryavarth) The number of Wuhan coronavirus cases would be inching closer to ten lacs by next week in India, the speed of new infections seems to be accelerating contrary to the claims by all state governments that all is in control. We are seeing a new wave of compete lockdowns being announced in differentiate cities, with Bengaluru going for a lockdown from July 14 – July 23. In this entire crisis, the demand for face masks, sanitizers, handwash and personal protective kits( PPE) for preventing Wuhan coronavirus has skyrocketed. People are constrained to buy masks and sanitizers to keep off from infection. However, the Finance Ministry continues to levy GST on COVID related supplies.

“In this difficult times, we are demanding that equipment’s and other necessary items essential for combating Covid-19 should be made GST free. It’s wrong that the public which is already reeling under disease and poverty is being charged GST on soap, sanitizer, mask and gloves,” Rahul Gandhi, the INC leader had tweeted recently. Hand sanitizers invite 18 per cent GST, face mask 5 per cent and paracetamol tablets, PPE kits, ventilators 12 per cent. The tax was making these products more expensive for hospitals and people, increasing the burden on the masses struggling to make ends meet, said the Congress leader Rahul Gandhi in a social media post, according to IANS.

Echoing same sentiments, even Maharashtra Deputy Chief Minister, Ajit Pawar has written to Union Finance Minister of the NDA Government requesting Goods and Services Tax (GST) exemption for some medical equipment used in the fight against the Wuhan coronavirus outbreak. Many corporates and NGOs have demanded to exempt COVID-19 outbreak-related medical equipment from GST, the savings of 5 %, 12 % or 18 % of GST on the purchases would be very substantial.

No Relief for consumers

World over, due to drop in demand for their usual line of production, industries have shifted production lines to produce Corona protection gear. The same has happened in India, and now we are producing over 4.5 lakh Personal Protective Equipment (PPE) suits daily, over 600 companies in the country are now certified to manufacture PPEs. The demand for PPE in India is at all time high and will only go up, as the virus infection spreads. You can imagine, that quantum of taxes that the Government is collecting by taxing these items.

PPE Kits are mostly used by Corona warriors and medical staff, the end cost is eventually charged back to the consumer, directly or indirectly. All private hospitals bill separately for PPE. The Finance ministry is yet to acknowledge that face masks and PEE Kits are not fashion accessories, that people are buying because of choice; most are forced to buy this to prevent getting infected. As on date, Personal Protective Equipment (PPE) has twin GST rates (5 per cent if price per piece is below ₹1,000 and 12 per cent if price per piece is above ₹1,000).

What is Governments stand on GST for COVID Items

The Finance Ministry of NDA Government continues to charge GST on the input items (raw material) for producing these COVID Protection items, and as a result, the manufacturers pass it on to the customer. It seems that the NDA Government is not keen to provide an exemption from (GST) for essential medical items such as ventilators, sanitizers, COVID-19 diagnostic test kits, masks and other protective equipment.

Currently, sanitizers are taxed at 18%, while ventilators and COVID19 test kits are taxed at 12%, face masks attract 5% GST. According to media reports, the Government’s stand is that GST is a value-added tax, collected at each step of the value chain, and the manufactures get an input tax credit for GST paid by them. If they were not able to get the credit for GST paid, they would increase the price for consumers.

This is a flawed assumption; why should the Government charge GST on raw materials for producing COVID protection items? First, the Government wants to tax to manufactures and then says the GST cannot be removed as they are getting input credit in the value chain. The Government should stop charging taxes on the input material used for COVID protection items, and reduce the burden on end consumers.

Harpreet Singh, Partner, KPMG, feels making PPE zero tax item is a solution. “The right step could be to make sales of PPE zero-rated where no taxes are levied on sales and input taxes that go into manufacturing of PPE are refunded,” says Singh.

Another flawed logic being propagated is that supply from China will flood the Indian market if GST is not charged to end consumers, and the manufactures will have to bear the GST on input material. This can easily be solved by levying customs duty on import of PPE.

Rajat Mohan, Partner at AMRG & Associates, is of the opinion, that reducing the tax to zero on PPE kits would free the supplier from all compliances under GST. “At this time, margin is very high in such kits, thereby exemption would lower the cost of products in quite a few cases — especially where tax rate is 18 per cent due to application of ‘mixed supply’. This will save the chain from compliance of e-way bills also,” says Mohan.

Where is AtmaNirbhar Bharat?

“The recent experience shows that sub-standard quality goods are exported by China to India and the world. Therefore, incentivising imports by the reduction of GST, at the cost of domestic units, may not be a desirable option,” a government source was quoted in the media.

To the contrary, the NDA Government has exempted imports of Personal protection equipment (PPE), COVID 19 test kits, ventilators, face masks and surgical masks from basic customs duty and Health cess till September 30. It also applies to the imports of materials that are used for the manufacturing of these items. Strangely, there is nil duty for masks and gloves for importers, but Indian manufactures, have to pay GST ranging from 5 to 11 per cent.

Rajiv Nath, the forum coordinator of Association of Indian Medical Devices Industry, had said, “We understand that there is a shortage of masks, gloves, personal protection equipment and other medical devices in India. We support the Government in ensuring that these shortages are met. But the benefits extended to importers must also be extended to Indian manufacturers.”

A section of Indian manufacturers of masks and gloves who were hoping to rebuild their business on Make In India is upset that no import duty will be levied on these items. “Make in India of medical devices is already suffering, and by exempting duty on imports, Indian manufacturing is at a further competitive disadvantage. This is the general mood of local industry,” said Dr G S K Velu, Managing Director of Trivitron.

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