Additional cess for flood-hit Kerala may get diluted at GST meeting

Flood-hit Kerala's proposal of an additional cess on state goods and services tax (SGST) to raise resources for rehabilitation may have to undergo modifications for an approval by the GST Council, the highest decision making body. Several state finance ministers have said that the proposal of imposing a 10 per cent cess across the board on SGST may put an additional burden on the people, who have been hit by the worst floods in the state in decades. They have suggested that the cess be limited to certain items only. 

Kerala Finance Minister Thomas Isaac has proposed a 10 per cent cess on SGST for two years to raise Rs 10 billion annually. It will be taken up by the Council in its next meeting on September 28-29 in New Delhi. However, Assam Finance Minister Himanta Biswa Sarma pointed out that although the GST law provides for an additional cess to be imposed in case of natural calamities, it must be limited to certain items. 

"We are thinking of imposing the cess for a two-year period. Kerala has one of the highest revenue deficits and I don't want it to widen further. An across the board cess is a rational fiscal policy response to the situation," Isaac told Business Standard.

“We are looking to raise Rs 10 billion per year through the move, as the Centre is just not helping us,” he said. Isaac added that the Kerala CM relief fund has received Rs 10 billion already, while the state needs at least Rs 40 billion. Isaac will meet Union Finance Minister Arun Jaitley on September 11 to discuss the proposal. Thirteen different cesses had been abolished to bring in GST - Swachh Bharat cess, rubber cess, Krishi Kalyan cess, tea cess, etc.

Meanwhile, Sarma said an across-the-board cess will put an additional burden on the people of Kerala, and hence must be limited to luxury goods or specific items. “The Council will take a decision and look at items where a cess is possible and where it is not,” he said.

Another state FM, requesting anonymity, stressed that the additional cess must be limited to only a certain items, mostly that are falling in the 28% category.

However, Isaac countered that saying that the actual incidence of tax came down after the introduction of GST, and hence the cess is not going to be a big burden on the common man. "Most of the essential items are already exempted under GST," he said. He further added that the burden will be huge if the cess is limited to items in the top tax brackets.

Bihar Deputy Chief Minister Sushil Modi said that the decision on cess will be taken by the Council after a thorough discussion in the next meeting. “The cess will have to be for a limited period. Besides, another state might face calamity tomorrow, and the cess could help. But the Council will go as per the mandate of the constitutional amendment. We will discuss it,” said Modi.

To open more fundraising channels for reconstruction and rehabilitation of its flood-hit areas, Kerala is set to approach the central government to increase its market borrowings limit from 3 per cent of Gross State Domestic Product (GSDP) to 4.5 per cent. The state is already in talks with the World Bank to raise Rs 100-150 billion.