GST Council to discuss flood-hit Kerala’s proposal to levy cess
The Goods and services tax (GST) Council in its 30th meeting on Friday will discuss Kerala’s proposal to levy cess on account of the revenue losses suffered due to recent floods in the state. Pros and cons of multiple options including legal amendment, cess on specific items or on all items or on State GST (SGST), whether the cess should be Kerala specific or national level will be discussed in the meeting, government officials said.
Also, some representations from states regarding Advance Authority rulings will also be taken up in the meeting.
“It is going to be a freewheeling discussion about the various options before the Council, in case it agrees to levy a cess for natural calamities. A final decision on the cess levy is unlikely in one meeting as even an option like legal amendment will take time to be implemented,” a senior government official said.
Explaining the nuances of the discussions held so far with Kerala over the topic of levying cess, the official said a cess on SGST, as proposed by the state, will require tweaking of the whole returns software of the GSTN. Also, concerns have been raised about consumers shifting to neighbouring states of Tamil Nadu or Karnataka to buy goods, especially highly taxed goods like cars, where even a 1 per cent extra levy will incentivise consumers to opt for purchases outside Kerala.
“If it’s levied only on SGST within Kerala, then for those businesses who purchase in Kerala for sales outside the state, the levy will get exported and it’s still unclear how it will be refunded,” the official said.
The other option could be to levy extra cess on all goods nationwide for a defined period of time, but even then the official explained, it would be along the lines of sugar cess, which many states had opposed. “For that option as well, the law would need to be amended to include natural calamities as the factor for cess apart from the current compensation on account of implementation of GST. A legal matter regarding the validity of compensation cess is already pending in the Supreme Court and till the Apex court gives its final order, even the Law Ministry will not give its view on the matter, as it did not for sugar cess also,” the official said.
The Constitution (One Hundred and First Amendment) Act empowers GST Council to recommend any special rate for a specified period to raise additional resources during any natural calamity or disaster. The GST (Compensation to States) Act, however, states that cess would be levied for the purposes of providing compensation to the States for loss of revenue arising on account of implementation of GST for a period of five years or for such period as may be prescribed by the GST Council. For any new cess, the reason for levy of compensation cess needs to be tweaked, lest its validity gets struck down by the apex court, officials said.
Kerala’s Finance Minister Thomas Isaac had said last week after meeting Union Finance Minister Arun Jaitley said, “The Union Finance Minister said that the GST Council should explore the possibility of an all-India cess to help states like Kerala in times of need. It will be discussed in the GST Council. This will be for a stipulated period…all states will contribute,” he had said.