Explained | Why is the flow of COVID-19 relief supplies to India facing problems?

The story so far: As India ran out of critical supplies for managing the severe second wave of the COVID-19 pandemic — from medical oxygen to medicines, hospital beds and even vaccines — the Centre unveiled gradual measures over the past month to ease the imports of some items. Import duties and taxes were cut in some cases, while a new system was introduced for allowing foreign donors to route emergency relief to the pandemic’s frontline victims. However, there are some serious hiccups.

What steps have been taken to facilitate imports of relief supplies?

On April 24, the Finance Ministry announced it was dropping the basic customs duty on import of COVID-19 vaccines, and the basic customs duty as well as health cess on imports of medical grade oxygen and other equipment related to providing oxygen to patients, till July 31. Prior to this, the customs duty on the much-prescribed drug for India’s COVID-19 patients, Remdesivir, and its active pharmaceutical ingredients had been waived. On April 30, the government dropped the import duties on diagnostic kits till October 31 to help ramp up testing efforts and allowed individuals to import oxygen concentrators for personal use through courier from e-commerce portals or global vendors. The customs department was told to clear them as ‘gifts’ till July 31.

Also read | Nirmala Sitharaman lists tax waiver on COVID-19 relief goods

Have all critical COVID-19 imports been made temporarily tax-free?

No. Though customs duties have been slashed, such imports still attract the Goods and Services Tax (GST), specifically termed the Integrated GST (IGST). For hospitals, corporates or domestic entities that import such goods, 12% GST is payable on oxygen concentrators and related equipment, the same rate that is payable on domestic purchases. Vaccines attract a 5% GST.

Imports of oxygen concentrators for personal use were taxed at 28%, but the government reduced this rate to 12% on May 1. So, even as special protocols have been put in place by the Shipping Ministry to ensure that vessels with COVID-19 relief material are unloaded on a priority basis and paperwork and cargo clearances are processed expeditiously by Customs and the Directorate General of Foreign Trade, GST payments are mandatory for the material to be released. Several shipments sent by foreign donors, including groups of NRIs, or procured online by resident Indians from abroad, were held up due to a lack of awareness of this.

G. Bansal, who, with his IIT alumni friends in London, sourced 40-odd oxygen concentrators locally and couriered them to Delhi when the city was facing daily shortages of medical oxygen, said they had to raise more funds subsequently to facilitate the GST payments to get them released. “The money wasn’t the issue, but this ended up delaying the use of those concentrators by at least three days,” he said, adding that for subsequent relief efforts, he and his friends were factoring in the GST costs as well, which would dent the quantities of relief material they send.

The same tax implications arise for all Indian entities trying to import such material, be it a domestic corporate or an NGO that raises funds to import such goods.

Has something been done to reduce the GST burden?

Yes, but there are problems. On May 3, the Finance Ministry granted a conditional ‘ad-hoc’ GST exemption for imports of all COVID-19 relief material, including vaccines, medical oxygen and Remdesivir vials, et al, till June 30. This was in response to representations from charitable organisations, corporates and entities outside India seeking exemption from paying IGST on the import of COVID-19 relief material, said the Ministry.

To avail of this IGST exemption, the material has to be “received free of cost for free distribution anywhere in India for COVID relief”. But domestic companies or charities importing these items by purchasing them, even if for free distribution in the country, cannot avail of this tax break. Moreover, entities that wish to import relief material for free distribution need a prior certification from State governments. So, global donors and their intended recipients for the donations would need to register with individual States where they wish to route relief material.

Can any entity use this system to tie up with a global donor?

No entity in India is allowed to receive foreign aid or cash donations unless they have an approval to do so under the Foreign Contribution (Regulation) Act (FCRA). No exemption from the FCRA has been granted in the system laid out by the Finance Ministry. Moreover, FCRA-approved entities and NGOs need to have the same stated objective as the intended use of funds being donated. New rules introduced last September required such NGOs to open a bank account for receiving foreign funds at the State Bank of India’s Parliament Street branch by April 1. Many have struggled to do this, with a petition in the Delhi High Court stating that only 16% of NGOs have managed to open an account.

But there is an even bigger challenge — an NGO receiving foreign funds or material can no longer transfer foreign aid to any other person, which would make it difficult to pass on the relief material to patients or smaller NGOs or groups working on the ground.

What next?

Nasscom has urged the Prime Minister to temporarily relax the FCRA norms, stressing that many countries and global firms are keen to help India. “However, the amended provisions of the FCRA 2020 are proving to be a deterrent. Given the humanitarian crisis, we would request the government to grant a temporary waiver to the FCRA Act and the 2020 amendments,” said Nasscom.

Also read | Put FCRA on hold to ease relief flow, Nasscom plea to PM

Separate petitions concerning the restrictive FCRA provisions are being heard in the High Courts, and a Bench of the Delhi High Court has also asked the Finance Ministry to consider dropping GST levies on all oxygen concentrator imports as they can be linked to the Right to Life under Article 21 of the Constitution amid the COVID-19 pandemic.

State governments are also expected to raise the issue of GST levies on COVID-19 supplies, including vaccines, at the GST Council meeting on May 28.