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Why Tax Vaccines, Nirmala Sitharaman Explains After Mamata Banerjee Note

Nirmala Sitharaman said the GST on vaccines and drugs helped manufacturers claim Input Tax Credit to keep costs low.

New Delhi: Finance Minister Nirmala Sitharaman on Sunday said that a 5 per cent tax on vaccines and 12 per cent on medicines and oxygen concentrators was necessary to keep costs low, after a new appeal by West Bengal Chief Minister Mamata Banerjee to waive these fees given India’s coronavirus crisis.

"If full exemption from GST (Goods and Services Tax) were given, the domestic producers of these items would be unable to offset taxes paid on their inputs and input services and would pass these on to the end consumers by increasing their price," she explained in a string of 16 tweets.

Input tax credit refers to the refund that manufacturers can claim on tax paid on raw materials and services used to make their products, thus making it cheaper. Things with zero tax are not allowed to use this relief, according to current rules.

Ms Sitharaman also said that COVID-19 drugs and related items have already been exempted from import taxes and 70 per cent of the Integrated Goods and Services Tax (IGST) goes down to the states.

The Finance Minister’s response comes after Mamata Banerjee wrote to Prime Minister Narendra Modi on Sunday, asking for tax waivers on the import of medicines and equipment needed to fight the COVID-19 pandemic.

It was Ms Banerjee’s third letter to PM Modi - since being sworn in for a third term on Wednesday - on the coronavirus crisis in the state and in the rest of the country. On Friday she wrote to highlight a potential oxygen supply crisis.

West Bengal and other states in India have been hammered by a vicious second wave of the coronavirus - which coincided with campaigning and voting for the 2021 Assembly election that Ms Banerjee’s Trinamool won - that has overwhelmed hospitals and left people dying from oxygen and treatment shortage.

This morning the state reported over 19,000 new Covid cases in 24 hours to take the active caseload to more than 1.25 lakh. Over 12,000 people have died so far.

Ms Banerjee has ordered a partial lockdown of the state, including extensive restrictions on movement and requiring all visitors to show a Covid-negative report no older than 72 hours.