GST law is not clear about such a levy for purposes other than compensating States for revenue shortfall
NEW DELHI, SEPTEMBER 24
The Goods and Services Tax (GST) Council, in its 30th meeting on Friday, will take up the Kerala Government’s demand for imposing a cess to collect additional resources to meet the cost of rehabilitation and reconstruction after floods caused havoc in the State.
This is the first time after introduction of the indirect tax regime last July a State is seeking imposition of cess. However, Finance Ministry officials are still struggling to find ways for such an additional resource mechanism.
“One can think of a special tax under present law, but cess for meeting expenditure on account of natural calamity is really a difficult preposition,” a senior Finance Ministry official said. The schedule of the Goods and Services Tax (Compensation to States) Act, 2017, provides for imposing a cess up to the rate of 15 per cent ad valorem on “any other supplies”. However, there is no clarity in the text of the law on imposing a cess for purposes other than compensating States in case there is a revenue shortfall. One opinion could be to amend the law to allow imposition of cess.
But, there is provision of special tax under the GST regime. Following a Constitutional amendment, sub-section (4) (F) of newly inserted article 279 A prescribes: “Any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster.” The Central and State laws have a permissible limit of 40 per cent (without cess) for GST, while the current maximum rate is 28 per cent. So, the option could be imposing a special tax for a specified period.The official also mentioned that collecting more tax from affected ones will not be good. Higher rates of GST in Kerala will not only adversely affect tourism and industry, but also create a precedence of different SGST rates for the same product across States, which was the position prior to GST.
Even experts are apprehensive about the idea of cess. MS Mani, Partner at Deloitte India, said: “While there could be a need for additional funding requirements to take care of natural disasters, altering the GST architecture should be avoided as this would become a precedent and introduce a new element of complexity.”
However, the Finance Minister of Kerala Thomas Issac has his own thinking. In a tweet, he said that GST must be made flexible to accommodate unforeseen urgent demand for resources as in the case natural calamities. “Kerala welcomes the suggestion of hon’ble FM for a national level cess on selected commodities for a specified period to help such States. GST Council to discuss,” he had tweeted on September 21.
Use of cess for purpose other than compensating States in case of revenue shortfall was first discussed to meet the liabilities of sugarcane farmers, but no decision could be taken as the Solicitor General (SG) is yet to give his views. The SG was asked to give his view on imposing a cess apart from what is mentioned in the Act. Now the SG’s view will be critical to decide on Kerala’s demand.