GST relief measures for surviving post COVID-19

The Coronavirus pandemic and consequent lockdown is paving the way for the new normal. Unfortunately, this new normal is going to lead businesses in India and around the world through a rather painful initiation or for lack of a better phrase, a rite of passage. Whether we like it or not, this pandemic isn’t going away anytime soon and even though India has launched ‘Unlock 1.0’, businesses are going to have a difficult time getting back on their feet. Adding fuel to the fire will be the burden of taxes. Even though the Centre has announced a number of relief measures like accelerated refunds, waiver of late fees and extended deadlines, businesses will hit the ground running once the lockdown is lifted. While these relief measures will help businesses temporarily, the Centre needs to pay attention to relief measures that will help businesses recover. What tax reform measures can be implemented to help businesses survive post COVID-19?

Temporary or short term exemptions on essential goods

While exemptions and rate cuts don’t really help either the Government or businesses or the consumer in the long run, a temporary or short term exemption or a rate cut in the supply of essential goods and services that will help curb the spread of the novel Coronavirus is the need of the hour. Goods like soap, disinfectant and hand sanitizers have had price control imposed on them but fall under the range of 12% to 18% GST. Because the cost of manufacturing essentials has gone up due to a shortage of manpower, raw materials and logistics, a short term rate cut could help businesses continue with production. Needless to say, stringent anti profiteering measures will have to be implemented to ensure that businesses remain ethical.

Zero rated essential services

It is very common to hear consumers shelling out lakhs of rupees on healthcare especially during this pandemic. This could probably be because hospital services are exempt from output GST. While that is a good measure, hospitals cannot claim input tax credit. Yet, they have to incur the expense of input taxes on drugs, medical equipment etc. All of these expenses are then built into the price of the services provided to the consumer. If hospital services were zero rated, they could claim input tax credit and thereby reduce the price of the service delivered to the consumer.

Optimising flow of input tax credit

Most business sectors have stated that ITC flow is a major pain point for them as it blocks working capital. As businesses start to normalise post lockdown, the offset of input tax credit is likely to stagger. Several business verticals like travel and tourism will require immediate and an optimised flow of ITC. A mechanism to ensure optimal flow of ITC will be highly appreciated.

Suspend GST on settlement

Several contractual obligations were violated because of the Coronavirus outbreak and consequent lockdown. Obviously, parties will attempt to settle these liabilities through liquidated damages or arbitration. But if the Centre demands GST on settlement amounts, it is highly likely that resolutions of these disputes could be delayed indefinitely.

This is an opportunity for India’s biggest indirect tax reform to prove its worth as a user-friendly tax; a collaborative approach between the Centre and businesses could help normalise the situation efficiently.

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