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COVID-19-battered Economy - Will GST Council open faucet of fiscal relief!

TIOL - COB( WEB) - 715
JUNE 11, 2020

By Shailendra Kumar, Founder Editor

MICROBES are known for their scant respect for geographical borders! Going by the aggressive surge of more than one lakh new cases per day, festooned with soaring death curve at global level, the COVID-19 pandemic remains far from any crest! In the last seven days, the global tally has swollen by close to NINE lakhs! Clearly, the outbreaks are too overwhelming for healthcare systems worldwide! The contagion canvas is too horrid particularly for the poor countries which have now begun to account for three quarters of the daily number - fewer hospitals and trained doctors & nurses; scarce testing kits; resources on 'ventilators' to purchase ventilators, PPEs and masks! The script is almost ready for running out of body bags and abandoning the dead on the streets like Ecuador! But affluent countries may do much to assist. A few can simply cater supplies such as testing kits and PPEs. Others can rise above their 'wolf diplomacy' and provide necessary financial help to combat against the otherwise almost invincible virus!

In this terrifying backdrop, the most trustworthy global health agency, the World Health Organisation (WHO) seems to be going through a pejorative cycle of Götterdämmerung! The global body has, in the recent months, issued several statements in a perfunctory spirit and later walked back! Let's consider what it said early this week - Asymptomatic COVID-19 patients largely do not infect others! This was interpreted worldwide as a hint to keep mask at arm's length! When its assertion was pilloried by critics, it fumbled and quickly retracted and stated that a lot remains unknown about asymptomatic spread. It also noted that some studies have suggested that as high as 41% of transmission may be attributed to asymptomatic patients!

Two more such public fumbles may be traced back to the WHO when it had stated that the COVID-19 is not spread from human to human! It was early March. After a few weeks, it again goofed up when it said that positive cases do not get protective anti-bodies! All such public utterances have come to be seen as nothing less than seppuku by such a trusted global body. A series of fumbles have certainly lowered its gravitas at a time when the international communities, particularly poor countries, rely on its pandemic-related advisories. India being the Chairman of the WHO Executive Board, does need to heed to all such faux pas and may drum up views for removal of its top brass in the coming months! Such a move would also cement the cracks pointed out by the Trump Administration and arrest its decay. At this juncture there is no choice and the global community needs to strengthen WHO faute de mieux.

Back home in India, the unlocking process was rolled out at a time when the virus had begun to spread at a worrying rate in a number of States. The daily number of positive cases has skyrocketed to the numbers being reported by the countries which are almost through with their peak-surge. Ideally, India should have continued with the lockdown for at least six more weeks to swim through the projected flare-up but the calamitous economic cost has forced it to confront a raft of political and health risks. The Central and State Governments are certainly in the know of the horrific projections for the coming weeks and also woeful inadequacy of the public health infrastructure. But this is also true that our governments have run out of necessary wherewithal's and the economy has got unrecognizably battered!

Caught between the devil and deep sea, India has taken a plunge towards the classical theory of 'Herd Immunity'! The number of positive cases is certainly more than what is being reported as too many new cases are being spurned for lack of beds. Looking at massive crowds moving like ice floes on streets, Indian tally may leave behind by miles even the USA! And unmistakable indicators are what Delhi Chief Minister's said the other day - COVID-19 beds are being black-marketed at a premium in private hospitals! If this is the state of affairs in early June, how scary is going to be the scenario in the coming weeks may be beyond imagination for many!

The Modi Government has apparently taken such a risk to rescue the economy from falling down the cliff! Such a decision may be supported by wider constituencies but it would be fruitful only if some overt fiscal measures are taken to prevent rapid perishing of MSMEs - about 40% are almost asphyxiated! Neither the Central nor the State Governments have opened their fiscal faucets so far! Perhaps, a beginning may be in the offing for unleashing of fiscal stimulus as the GST Council is scheduled to meet on Friday through video conferencing. Though it is learnt that there are not much substantive agenda items and it is being largely organised to comply with the Business Rules of the Council - mandatory quaterly meeting but I sincerely hope that the State Finance Ministers would not forfeit yet another opportunity to convince the Centre to grant some tax rate benefits, particularly to seriously-thrashed sectors like tourism, aviation, restaurants, construction, medical devices and many more. The minimum one expects from the Council is as follows:

++ Defer GST Payment for Three Months

• the GST (net payable in cash) may be permitted to be deferred for three months,

• no interest should be charged on net cash (Gross liability minus ITC) for three months.

• after three months, the Government may start getting regular revenue in cash as the taxes of three months prior shall become payable and thus, the entire cycle is only deferred.

Many customers have defaulted or postponed bill payments due to business closures or general breakdown in corporate payment cycles, job losses etc. Therefore, in such instances, the GST should be levied on actual payments received from customers and not on invoices raised so that the suppliers do not have to pay GST on delayed payments or defaults which are on the rise during the pandemic.

++ Allow ITC on goods donated as part of CSR during COVID-19

• Donations made by businesses in view of the pandemic should not require reversal of ITC paid on supply of such items. Similarly,

As per Sec 17(5)(h) of CGST Act 2017, input tax credit shall not be available on the goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

++ Avoid GST on salary of hired manpower

• The Ministry of Corporate Affairs has clarified that Payment of salary or wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary or wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternate source of employment or livelihood during this period.

• Several industries take a large part of their manpower on contract basis through manpower supply agencies. This manpower is not on the payrolls of this industry. As on date, the industry pays GST towards such service to the Agency. The Industry ends up paying GST @ 18% on the value of service which includes (a) wages or salary (b) statutorily mandated benefits such as PF, ESIS etc and (c ) the commission or service charges to the Agency.

++ Permit ITC on immovable goods if a new unit is set up

• In the last few years, the companies around the world which have made China their factory have either shifted out of the country or are mulling over the idea. The outbreak of Coronavirus from China will only accelerate the flight of the companies to India and Southeast Asian nations. India should become a preferred manufacturing alternative to China then to attract set-up of new manufacturing facilities;

• Section 17(5)(d) specifically disallows credit in respect of construction of an immovable property on his own account including when such goods or services are used in the course of furtherance of business.

• Allow the credit for setting up of the factory ; Keep Sec. 17 (5)(d) of CGST Act which denies ITC related to the construction of immovable property in abeyance for one year.

++ Go slow on enforcement - All preventive measures notified in last six months should be put on hold

• Blocked credit under Rule 86A may be released . It gives lot of liquidity;

• E-Way bills may be waived during recovery of economy during COVID period;

• No GST audit for one year;

• Do not ask for value of like goods at the time of export.

I strongly believe that even if the Council gives its nod for 50% of these suggestions, it would go a long way in reinforcing the trust of the businesses in the seriousness of the Governments to revive the economy. Exceptional time needs exceptional action. And COVID-19 has created such an exceptional pitfall from which only a powerful 'recovery van' can pull the economy out!