GoM to decide COVID items' GST exclusion, compensation to be extended

New Delhi: The Centre has decided to constitute a panel of Ministers to decide on exempting COVID related drugs, materials and other items from the GST ambit after the GST council that met yesterday adjourned without reaching a consensus between the Centre and the Opposition-ruled states.

The Goods and Services Tax Council convened yesterday after eight months of delay chaired by the Finance Minister Nirmala Sitharaman, particularly to discuss to reach the benefits of GST excluded the COVID related items to the common man. The Group of Ministers, which will be formed soon, will summit its recommendation by June 8.

Minister Sitharaman said that though the benefit of GST exclusion of COVID items would reach patients, the collateral impact of the technicality on other items could not be ruled out. The Centre concern was that it was not only the vaccines and drugs, but other COVID related items would have to be excluded from the GST ambit, eventually affecting not only the revenue generation but the implementation of the rule.

At this impasse, the Union Finance Minister recommended that the matter should be referred to Ministers' panel that will make sure the benefits reach the common man.

The GST compensation was one of the major topics the council had to discuss on the basis of its October meeting's outcome. The October month's GST Council meeting had decided to extend the GST compensation period to states beyond the transitional period of five that is beyond June 2022, to offset the revenue gap.

But the opposition ruled states have raised concerns about the 7-per cent revenue growth assumption. Meanwhile, the Centre offered the increase of the shortfall amount to Rs 1.10 lakh crores from Rs 97,000 crores under the borrowing option.

On the compensation front, a rule has been set by the Centre while introducing the GST to provide the compensation to states to offset the revenue loss due to the loss of autonomy over indirect taxes.

The Centre had maintained the promises by providing bi-monthly compensation as per the set rule but interrupted the flow when the Centre faced revenue shortfall due to a financial crunch in the country even contributed by various direct and indirect administrational fault even before the COVID hit the country.

The COVID induced lockdowns and other restrictions last year worsened the situation as the GST collections declined further, while some of the states threatened of moving to court to claim the GST compensation from the Centre. As the situation got aggravated, the Finance Ministry has put forth before the states the options of burrowing on the promise that the Ministry would return once the financial condition returns to normalcy.

Not all the states agreed upon the Centre's burrowing proposals as the opposition ruled states like Kerala insisted that the Centre should burrow the money and pass it over to the states. After several rounds of the GST council meeting, the Centre and the States have come to a consensus on specified conditions. The revenue shortfall is calculated assuming a 14 per cent annual growth in GST collections of states, over the base year of 2015-16.