GST: FMs’ panel to seek States’ views on calamity cess

GST: FMs’ panel to seek States’ views on calamity cess

News:

  1. A panel of state finance ministers is being set up to deliberate a ‘disaster cess or tax’ under the goods and services tax (GST) to help states hit by natural calamities.

Important Facts:

  1. The panel has to examine the issue regarding ‘Modalities for Revenue Mobilisation in case of Natural Calamities and Disasters’ and submit its report by October 31.
  2. The panel would also seek views of the attorney general on the legality of levying a ‘disaster cess’ or a ‘disaster tax’ to fund states hit by natural calamities.
  3. Questions over which panel would deliberate.
  • Should the entire burden of cess be borne by the affected State only?
  • Should it be an all-India levy and can it be confined to luxury or sin products?
  • Is the National Disaster Response Fund (NDRF) mechanism sufficient or more can be done?
  • Should there be a distinction between natural calamities?
  • What is the legal methodology available?
  1. Background:
  • The issue cropped up after flood-hit Kerala approached the GST Council for imposing a cess to raise additional resources to help it tide over the losses suffered due to the recent floods.
  1. Fund Crunch:
  • NDRF (Natural Disaster Response Fund) and SDRF (States Disaster Response Fund) are not sufficient to fund natural calamities.
  • The size of National Calamity Contingent Duty (NCCD) which is a major contributor to NDRF fund was ₹6,450 crore during 2016-17 and dipped to ₹3,660 crore during 2017-18.
  • Since the requirement is high, the fund has to be provided through Central Budget and as most of duties have been subsumed in the GST, so contribution from duties for the funds has reduced.
  • Hence, a way to raise additional resources is being explored by means of a state-specific or nationwide ‘disaster tax or cess’.
  1. Constitutional Provisions:
  • There is a 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 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.
Print Friendly and PDF