Moneycontrol
Last Updated : Nov 27, 2018 04:16 PM IST | Source: Moneycontrol.com

GST ministerial panel seeks finance commission's views on natural calamity cess

The GoM was set up in line with what the Kerala government had asked after the devastating floods swept through the southern state in August, leading to severe loss of life and property

Shreya Nandi @shreyanandi15

A state finance ministers' panel have sought the 15th Finance Commission's views on a proposed cess within the goods and services tax (GST) framework to raise funds for states hit by natural calamities.

The group of ministers (GoM) on ‘Modalities for Revenue Mobilisation in case of Natural Calamities and Disasters’ headed by Bihar Deputy Chief Minister Sushil Modi, which was supposed to submit the report by October 31, will now present it to the GST Council that is expected to meet mid-December.

The GoM was set up in line with what the Kerala government had asked after the devastating floods swept through the southern state in August, leading to severe loss of life and property.

The 15th Finance Commission, which was constituted to give its recommendation for devolution of taxes, will suggest how National Disaster Response Fund (NDRF) should be funded, now that a single nationwide taxation system, GST, has been implemented.

The NDRF corpus has been is found to be insufficient as most of cesses that contributed to the fund have been subsumed under GST.

The panel has sent a questionnaire to the states seeking their views if additional tax via State GST (SGST) should be borne by the states or it should be levied on pan-India basis.

While some states have sent their views, it is learnt that response from other states’ still awaited.

For instance, Punjab, which has never faced natural disaster has communicated its reluctance to raise fund through an additional levy, sources said.

In September, the GST Council had decided to form a group of ministers (GoM) that will devise a mechanism to raise additional funds to help states, if they are affected by natural calamities.

Kerala had sought levy of additional SGST in the state. The Council had then pointed out if the burden on additional tax via SGST should be borne by the state that is already suffering or if it should be an all-India levy.

Some states fear that imposing additional SGST will defy the one-nation-one-tax-principle, and the immediate impact will be that trade may shift to adjacent state.

Alternatively, in case of an all-India levy, it needs to be decided if it should be confined to only luxury or sin products and whether NDRF--a specialised response for natural and man-made disasters--is enough or something more needs to be done from indirect tax kitty.

According to constitutional amendment as per Article 279A (4), the ‘Council will make recommendations to the Union and the States on important issues related to GST, like...special rates for raising additional resources during natural calamities/disasters’. While a Council has the power to impose a ‘special rate’, it is not clear if a ‘cess’ can be imposed for any purpose other than giving compensation to states.
First Published on Nov 27, 2018 04:16 pm
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