Decision deferred in deference to public

In the face of persistent demands to remove tax on Covid-related vaccines and treatments, the GST Council has declined to take the bull by the horns, and, instead, sent it to ruminate for a while in a Group of Minister’s pasture. This might help dissipate one strand of public anger over the management of Covid in the country. The rationale for scrapping tax on Covid-related drugs and vaccines is weak. The share of tax in the total cost of Covid treatment is relatively small. The well-off can bear it, the poor get their treatment at government facilities or under Ayushman Bharat. If they get it from a private facility, scrapping tax would not reduce their overall treatment burden overmuch, the total cost dwarfing its tax component. But these taxes cumulate to a sizeable sum for the government.

The marginal benefit to individual Covid patients from scrapping tax is likely to be smaller than the loss to the collective from the government having to borrow more, to keep spending even as taxes shrink. Some level of protection (ideally, a low uniform duty, say 5%, on imported pharmaceuticals and their inputs) is warranted to help domestic manufacturers grow. Already, the exemption on integrated GST on many imported items and life-saving drugs has been extended till August. Oxygen concentrators have been exempted from IGST, even if imported for personal use on a payment basis, following a ruling of the Delhi High Court. Judges should appreciate, and government counsel educate them on, the difference between exempting an item from GST and specifying a GST of zero per cent.

The Centre should borrow and grant the states compensation for GST shortfall, honouring, in letter and spirit, the promise it made at the time of adoption of GST.