The central government’s decision to procure vaccines and supply to states free of cost has resolved a grievance many opposition-ruled state governments had raised over the 5% Goods and Services Tax (GST) rate on vaccines which they had to pay under the earlier policy.
The Centre will provide free covid-19 vaccines to all adults from 21 June, Prime Minister Narendra Modi announced on Monday, in a revision of the government’s much-touted strategy of “liberalized and accelerated” vaccination.
The central government will now buy 75% of vaccines and give them free of cost to states, Modi said.
With the Centre agreeing to procure three-fourth of domestic production of covid vaccines, this tax liability falls on the union government. Half of the GST collected on any item goes to the Centre and the rest to the consuming state. Also, 41% of the Centre’s overall tax collection goes to states. The shift in covid vaccination policy from 21 June removes the tax burden on states under the current arrangement of states having to procure a quarter of domestic vaccine production.
This makes it easier for the federal tax body GST Council to decide on tax proposals for relief on vaccines and other locally produced medical supplies.
A group of ministers set up by the Council to recommend the tax rates when states demanded tax cuts on vaccines and other locally produced medical supplies needed for covid management, submitted its report to union finance minister Nirmala Sitharaman late on Monday, Meghalaya chief minister Conrad Sangma, who led the ministerial group said in a tweet. The report has not been made public yet.
With the Centre agreeing to supply free vaccines, states are unlikely to have any objections on the tax rate applicable on vaccines. In the case of a few other items such as medical oxygen, oxygen concentrators, pulse oximeters and covid testing kits, the Centre has no objections to lowering the tax rate from 12% to 5% temporarily. A decision on these is expected shortly.
The new vaccination policy has helped to diffuse a major area of tension between Centre and some of the states which have expressed their fiscal woes arising from higher spending requirements.
“Vaccines will be free of charge for all above 18 years of age. There shall be increased supply of vaccine too,” Sitharaman had said in a tweet on Monday night.