State keen on GST cess

New Delhi: The Kerala government intends to ask the Goods and Services Tax Council to allow the flood-ravaged state to impose a temporary 10 per cent cess on state GST to pay for the money it needs for flood relief and later to rebuild its collapsed infrastructure.

Kerala will seek support from other states to get a free hand in setting tax rates or levy a cess over GST rates to raise emergency funds during natural calamities, finance minister Thomas Isaac has said.

“This will not affect the Centre’s revenues; and will not affect other states,” Issac added since the cess will be levied only on intra-state trade.

Last month, Kerala had opposed the idea of a nationwide sugar cess to ease the pain of the sugar industry. The GST Act does provide for a national calamity cess but has no provision for a state-wide cess. Isaac says the crisis in Kerala justifies a relook at the GST provisions especially when the Centre won’t allow a Rs 700-crore aid offer from the UAE.

“There is nothing in the GST Act which says a cess can or cannot be levied. The Centre has already levied the Compensation Cess which is to compensate states for their loss in revenues levied on goods like colas,” said Sumit Dutt Majumder, former chairman of the Central Board of Excise and Customs (CBEC) and author of an authoritative work on GST.

“Since any changes in the tax structure can only be done with the approval of the GST Council, this proposal will have to come up before the GST Council at its scheduled September meeting or if Kerala so wishes even earlier through a teleconference,” added Majumder.

Finance ministry officials saw Issac’s move as a bid to put it in a spot for denying Kerala the foreign aid offer. “It’s a double-edged sword. If we refuse, they (state authorities) will sell it as a desperate measure because foreign aid was not allowed. If we agree, it will become a template and states will in future seek to impose a cess even when minor flooding or drought conditions hit them,” one official said.

North Block officials said that even if the GST Council were to agree to Kerala’s demand, certain procedural issues would have to be resolved: will the cess apply only to goods produced and sold in Kerala or apply to goods brought in from other states for sale? Will the cess apply to the inputs that go into the production of goods made in Kerala and sold in other states?

The coastal state had sought an initial grant of Rs 2,600 crore towards relief. The Centre has sanctioned only Rs 600 crore till now.

Besides the UAE, Qatar has offered Rs 35 crore. The Centre’s stand is that the government had in the last decade taken an in-principle decision not to accept foreign aid from most countries, including Denmark and the Netherlands. However, India continued to accept bilateral aid from large economies such as Japan and the UK. This year Britain gave Pounds 92.6 million to India through its aid agency – DFID.

However, a row within Britain over its aid to an emerging super-power with its own space mission had prompted then finance minister Pranab Mukherjee to say in Parliament in 2011: “We do not require the aid…. It is a peanut in our total development exercises.”


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