GST panel examines alternatives on sugar cess; here's all you need to know

The Group of Ministers (GoM) to look at imposition of a contentious sugar cess under the goods and services tax (GST) regime has mulled on four ways in this regard. 

One of these is a rate hike on sugar, which it considerd last Sunday, to raise revenue for helping cane farmers. 

It is awaiting the Union attorney general's opinion on whether such a cess could be levied within the GST structure. 

The law ministry thinks it could. Beside imposing a separate sugar cess, another way is to raise the GST rate for sugar to 12 per cent, from the present five per cent. 

Yet another is to restricting imposition of any cess to luxury or demerit items only. The GoM also deliberated on whether to go for a one per cent GST rate hike across all slabs, to spend on farmer welfare. It is estimated a cess could fetch Rs 67 billion to the government. “If the law ministry says we cannot impose a cess, these options will become irrelevant,” Sarma told Business Standard. 

“We will convene another meeting, for a third time, after the law ministry’s views are made available to the GoM.”

The report by the panel is expected to be finalised before the next GST Council meeting. The government had abolished 13 different cesses, including the swachh bharat cess, rubber cess, krishi kalyan cess and tea cess, to implement GST. 

“Imposition of a specific sugar cess could open the floodgates for other commodity-specific cesses, subsumed just a year before. 

While GST is a key revenue generator, it should not be used as a tool to alleviate sector/commodity related issues, as that would lead to significant changes in the GST structure,” says M S Mani, partner at consultants Deloitte India. 

The GST Council in its meeting on May 4 took up the proposal by the ministry of food to impose a Rs 3 a kg sugar cess to help cane farmers. 

However, the proposal evoked sharp protests by some states, particularly Kerala, West Bengal, Karnataka and Andhra Pradesh. The GoM was constituted to deliberate on the matter.

The panel also has the finance ministers of Uttar Pradesh (Rajesh Agrawal), Maharashtra (Sudhir Mungatiwar) and Kerala (Thomas Isaac) and Tamil Nadu's fisheries minister, D Jayakumar.

Isaac has already said the cess would create inequity between Centre and states.