Panel of state finance ministers to discuss sugar cess with law ministry

To explore alternative methods of resource generation at next meet; Isaac suggests super-rich tax instead

A panel of state finance ministers to look into the proposed imposition of a sugar cess under the goods and services tax (GST) regime decided to seek the union law ministry’s opinion on the legality.

The committee, led by Assam's Himanta Biswa Sarma, will also look at alternative ways to raise money for helping sugarcane farmers, at its next meeting on June 3 in Mumbai.  

Kerala’s Thomas Isaac suggested the Centre consider a one per cent surcharge on the super-rich. But, that would be a direct tax, while GST is indirect tax.

The panel will also seek a report from the Union food ministry on utilisation of the proceeds from the proposed sugar cess.

“Two fundamental questions have emerged, one on whether the Council has the power to impose cess or not. This will go to the law ministry. The other issue is whether the cess will go to farmers or mills,” said Sarma after the meeting. He added another issue was whether “we can use other means to raise money to help sugarcane farmers”.

The panel's report is expected to be finalised before the next GST Council meeting. “Two to three more meetings of the GoM (group of ministers) would be needed,” Sarma said.

According to estimates, the cess, proposed at Rs 3 per kg, could fetch about Rs 67 billion annually.

The GST Council, at its meeting on May 4, had taken up the proposal by the ministry food on the cess, to compensate cane farmers as market prices are below the cost of production. 

However, there were protests by some states, particularly Kerala, West Bengal, Karnataka and Andhra Pradesh. The committee was constituted on the matter.

The GoM expects the law and food ministries to give their views by the end of this month.

“We must first know whether we legally have the power or not to levy cess.... if the law ministry says there is, the Council will exercise that power when it serves public interest,” Sarma said.

Currently, only compensation cess is within the purview of GST law. It is levied on a handful of luxury and demerit items in the 28 per cent GST slab, to compensate states for revenue shortfall due to GST implementation for the first five years.

The food ministry also recommended to the Council a cut in the GST rate on ethanol from the present 18 per cent to 12 per cent.

The five-member panel also has Uttar Pradesh's Rajesh Agrawal, Maharashtra's Sudhir Mungatiwar and Tamil Nadu's fisheries minister, D Jayakumar.