The most powerful GST Council will be considering a proposal from Kerala to levy Calamity Tax, a special tax or cess to raise additional resources aimed at meeting the cost of reconstruction in Kerala in the aftermath of floods.
This is for the first time post-GST launch, a State is asking for an additional resource through a higher tax rate.
A Finance Ministry official told The Hindu BusinessLine that the law has provisions for the introduction of both a special tax as well as a cess. The council is undecided on which route to take in order to meet the state’s demand for aid.
Post GST, the Centre, and the State together take decisions on matters regarding indirect taxation. However, the final call on the introduction of an additional tax will be taken by the center.
Kerala, which witnessed the worst natural disaster in almost a century, will need additional resources to rehabilitate the displaced and rebuild public infrastructure damaged in the floods. The state’s finance minister T M Thomas Issac told the news daily that the Kerala government was going to approach the GST Council for the levying of a cess to meet the additional requirement for funds.
A Cabinet meeting of Kerala Government, on 21st August, approved a to levy a 10 percent cess to compensate the damage caused. The permissible limit for taxes, as established under the federal laws enshrined in the GST, is 40 percent. This is not inclusive of cess. The current maximum rate is 28 percent.
The next GST Council meeting is scheduled to the end of September.
A purpose-driven cess, as proposed by the Kerala government, is valid according to the prevailing laws. Without being in contravention to the GST, a cess could help raise money for rebuilding infrastructure in the wake of one of the worst natural calamities to hit the state in recent years.
