Tax relief for recovery: GST concessions can go a long way in supporting businesses

Various measures have been taken by the government to tide over the Covid-19 storm. It has announced relief via relaxations in GST compliance. Price controls have been imposed on various essential commodities. Recently, it also announced exemptions on customs duties and health cess for some products. GST rates should be suspended/reduced on critical items, including surgical masks, disposable gloves, ventilators, hand sanitisers, etc.

Hospital services are exempt from output GST.

However, hospitals routinely incur several input taxes, including huge GST outlay on capital procurement of equipment, and recurring GST on medical devices/ items/drugs and services such as rent/marketing/R&D. As ITC facility is not available for exempt-supply, these credit costs are built into the price. Hospital services can be ‘zero-rated’ allowing refund of such ITC. This would reduce the cost of service and deliver benefits to patients. Similarly, private healthcare premiums are currently taxed at the 18% rate. Through exemption/reduction of GST, private insurance can also be made affordable.

Strong anti-profiteering mechanisms with sensitisation of end customers can ensure the transfer of benefits.

Routine business activity post-recovery may encounter several hurdles under GST:

i) Disruptions will lead to non-performance of contracts. Parties may commercially settle liability contractually through liquidated damages or arbitration. The department has typically demanded GST on settlement amounts as ‘acts of toleration’. This would delay dispute resolution.

ii) Companies have actively assisted in relief efforts in response to the government’s call to action. Manufacturers of essential items such as masks and FMCG retailers have distributed a portion of their inventory as relief. ITC on such items may not be available as a blocked credit.

iii) The auto sector will be key to any post-crisis recovery. Auto entities scrapping existing inventory under newly introduced BS-VI standards may also need to reverse ITC, a double blow to this critical sector for a bona fide policy change.

iv) A rebound in exports is also essential. Exporters hitherto had the option of filing applications under SEIS for FY17 until March 31. There is ambiguity if this date has also been extended till December 31. Currently, there is already a significant backlog of SEIS applications. Delay in disposal and lapse will further hurt service exporters. Pro-active redressal will, thus, go a long way.

The post-Covid economic scenario will be extremely cost-sensitive. Seamless flow of ITC can greatly reduce cost stress. During lockdown, companies will still incur routine expenses (such as rent, IT) without revenue. As business picks-up, offset of ITC against output will be staggered. Stressed sectors such as travel and tourism may prefer an immediate inflow of cash of ITC, rather than prolonged adjustment. Crunch in cash flow can hinder credit validity.

Payments not made to suppliers within the statutory 180 days period or withholding of payment for non-performance can lead to credit loss. Vendors may default in filing returns or discharging tax payment even over an extended period due to genuine business difficulties. This will make reconciliation a difficult task. Deferring the statutory date for credit claim would be ideal.

Thus, rather than digital signature filing of applications should be done with Aadhar-linked electronic verification code (OTP). Exemption from uploading invoices for GST refund should be given. Scanned copies of instead of actuals should be considered.

A collaborative approach is the need of the hour. Let us all move together to ‘un-tax’ the coronavirus.