Here's Why Govt Did Not Cut GST On PPEs, Masks, Ventilators

After the Congress leader Rahul Gandhi said on Monday that GST (goods and service tax) should be waived on COVID-19 related equipment, an Economic Times report citing government sources said that taxes were placed on items like PPE, ventilators, test kits, and sanitizers to discourage 'sub-standard imports' from China.

"It is wrong to collect GST on sanitisers, soaps, masks, gloves etc. from the people who are suffering from disease and poverty. We will stand by our demand of #GSTFreeCorona," Gandhi tweeted.

A list of items along with the GST charged on them by the government was also attached to the tweet which included 18 percent tax on sanitisers, liquid hand wash and furniture such as hospital beds and examination tables, 12 percent on blood test strips, medical-grade oxygen and hydrogen peroxide, and 5 percent on masks, diagnostic kits and some drugs.

ET's report, on the contrary, said that GST exemption would make these product cheaper leading to hardships and distortion for domestic manufacturers without much cost-benefit to the consumers. Such a step would allow imports to get a cost advantage on domestic supplies, especially in PPE where the hardship on account of GST exemption would be "severe" for domestic units as basic customs duty on the item is nil up to 30 September 2020.

The government officials said it has been observed that sub-standard quality goods are being exported by China to India and the rest of the world, which is not good for Indian manufacturers or consumers.

The report further said that distorting rate structure at the cost of domestic supplier is not desirable considering that government is the biggest buyer of these goods at present and is supplying these goods for free.

The government has exempted basic customs duty and health cess on such items, except sanitisers till 30 September to encourage imports due to immediate need for these products. However, the GST exemption on such items could have its cons without much benefit to the end consumer.

For example, the GST exemption on the final product will block input tax credit (which is a way to regain GST costs spent on raw materials) for manufacturers. The consumer will not make significant gains from the exemption and compliance burden would increase for the manufacturer, it said.