MARCH 31, 2020

By Dr G Gokul Kishore

NEVER in recent history, during peace time, so many have to lose their life as we are witnessing today due to Covid-19 crisis. In this 79th part, we focus on GST relief for the industry battered by lockdown and to support the government in its efforts to generate additional revenue.

GST exemption to goods and services

GST is premised on least exemptions and seamless credit. But, extraordinary times demand extraordinary solutions. This is the time to make a departure from such principle. Total exemption from GST is the need of the hour in the literal sense, not after a few weeks. Masks, gloves, protective apparel, ventilators, hospital beds, infrared thermometers, thermal scanners, sanitisers, disinfectants, several medical equipment and other items directly used to monitor, protect from or fight Covid-19 should be granted full exemption from GST. As many of these items are imported as well, IGST exemption should provide great relief. Most of these goods attract the general rate of 18% GST which is a higher rate for such essential goods at this juncture.

Intermediary services whereby supply of the above goods is facilitated by agents and such other persons, job work services in relation to production of the above-mentioned goods, transportation of relief material, IT and ITeS services related to relief measures should also be granted exemption. These exemptions can be for a limited period like three months and one sincerely hopes that at the end of third month, battle over corona virus would have been won and exemptions may not be required any further.

GST rate reduction for MSMEs

Tax has also been used as a policy instrument by governments world over to achieve various welfare objectives. In Central Excise, based on non-use of power, exemptions used to be granted. It was generally believed that those industries who depend on manual labour and who could not afford use of power to run their unit need to be supported through tax exemption. When almost every kind of business has been shut and where significant production days have been lost which will result in far lower economic activity post-corona, it is time to use GST to provide relief to vast majority of MSMEs and small service providers.

Based on turnover, partial exemption can be explored for the goods and services supplied by them. Partial exemption is advocated because, total exemption may mean substantial erosion in revenue collections and tax base as such which are not desirable in the longer run for an economy. The turnover limit for this purpose may be Rs. 5 crore or more. Such relief can have sunset date which can be extended if situation warrants.

A logical consequence of the above measure would be credit accumulation in the hands of distributors, dealers and other downstream suppliers. Refund of such accumulated ITC can be granted to them based on certain formula and this relief will leave some funds with them for working capital requirements. Along with the measures announced by Reserve Bank of India in the form of deferment of interest for three months on working capital facilities in the form of cash credit and overdraft, ITC refund will provide some funds in the short term for the industry.

Cross-utilisation of CGST credits by distinct persons

In the initial months of implementation of GST, a demand was raised to allow input tax credit in respect of CGST across registrations of a company instead of restricting such credit also State-wise. While restricting SGST credit to a particular State is understandable, bar on cross-utilisation of CGST credit was defended on the ground that registration is State-wise, electronic credit ledger is State-wise and, therefore, credit availed in a ledger cannot be migrated to another ledger in a different State. This is more of book-keeping rather than a revenue-oriented measure.

CGST revenue accrues to the Central Government and any way, credit of CGST cannot be used to offset SGST liability. Therefore, there appears to be no eminent rationale in placing such restriction. Such measures can be eased in these difficult times. If cross-utilisation of CGST credits is allowed, it may benefit only those suppliers who operate from multiple States. But this will certainly reduce the cost of supplies. It may be bit complicated to rejig the GST portal and write the code (program) afresh. India is an IT powerhouse and such tinkering should be possible within a short time.

Imposing health cess or relief cess

Projections indicate that GDP will be far too lower this year. This means revenue collections will dip drastically. By providing tax exemptions and other relief as suggested in this part and the previous part, the tax revenue position will get even worse. This will, in turn, affect allocation to health sector and various others for providing relief from the coronavirus pandemic. There cannot be an iota of doubt that large amount of funds is required to support large-scale relief and rehabilitation operations. There is no alternative but to impose a health cess or relief cess as a surcharge on GST. With Kerala Flood Cess already in operation, cess or surcharge is not new to GST regime now. An additional one per cent tax for one year on all supplies may yield around Rs. 10,000 crores after giving allowance to exemptions (if implemented). Such additional resource should support the efforts to contain the contagion and to eventually eradicate it.

An emergency meeting of GST Council should be convened over video conferencing mode to discuss such relief/additional resource mobilisation measures and decisions are taken; followed by immediate issue of notifications so that all stake-holders benefit and contribute once the lockdown is lifted.

[To be continued…]

[The author is an Advocate. The views expressed are strictly personal.]

See Part 78.