Kerala requests the GST Council to allow the State to levy ten percent cess on State GST to mobilize additional resources for rehabilitation and reconstruction of the State devastated by the flood.
Article 279A of the Constitution authorises the GST Council to recommend for a special rate for a specified period to raise additional resources during any calamity or disaster.
The GST Council in its 30th meeting held on September 28 discussed Kerala’s proposal. Most of the States and the Centre have reservations on the additional levy on State GST. The Council constituted a Group of Ministers (GoP) to examine the issue and submit its report to the Council to take a decision in the matter.
If Kerala or any State is allowed to levy additional cess, supply to the State and supply from the State to other States cannot be taxed. This will violate the basic principle of destination based consumption type GST.
Second, there will be price variation of the goods between Kerala and the neighbouring States resulting in flight of business to the other States. The people of Kerala will tend to purchase from the neighbouring State since the goods will be cheaper there.
Third, GST Network (GSTN) has to be modified for the State. The GSTN has to make provision for not only collection of additional levy but also for penalty in case of non-payment, assessment or recovery. The system will be complicated.
It is also not proper to tax the people who have already suffered the calamity. Odisha is a natural calamities-prone State. The State has suffered Super Cyclone in 1999, Phailin in 2013, Hud Hud in 2014 and recently Titli. Under Odisha VAT Act, the State has the discretion to levy additional tax to meet the exigency. But the State has never resorted to tax the people by way of raising VAT rate, though it could have done so. Rather, the State has exempted tax on construction materials used in rehabilitation and restoration activities.
With implementation of GST, the States have surrendered their fiscal autonomy to the GST Council with regard to taxing goods. A State can neither increase nor decrease the tax rate of goods without prior approval of the GST Council. This matter was discussed in the Empowered Committee of State Finance Ministers at the time of drafting of Constitutional Amendment for introduction of GST. Many States want they should be given a leverage to increase the rate of goods if required to meet the exigencies arisen out of a natural calamity. It was then decided that a State can increase the tax rate within a band with approval of the GST Council. Later, the Constitution was amended and Article 279A was inserted with the provision that the GST Council can recommend on “any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster.”
A plain reading of the provision indicates that the GST Council cannot recommend permanently and for future calamities for a levy to raise additional resources as it has to be for a specified period and during a calamity or disaster. A State may suffer calamities more than one in a year like cyclone, flood or drought.
The GST Council cannot recommend one levy for each calamity. That will be cumbersome and impracticable.
In the event of natural calamity or disaster, the State Government meet the exigency from State Disaster Response Fund (SDRF). The sharing pattern of the corpus fund between the Centre and the State is in the ratio of 90:10. Besides, the Centre also supports a State inflicted with a calamity from National Disaster Response Fund (NDRF).
The Centre levies National Calamity Contingent Duty (NCCD) on Excise and Customs Duty to finance NDRF. After introduction of GST, except six goods such as petrol, diesel, etc, all goods have been subsumed in GST. So, funding of the NDRF has been reduced. But the release of the fund from NDRF or SDRF is for immediate relief and restoration.
NDRF or the SDRF does not support the State for long term rehabilitation or restoration. It does not finance for constructing a concrete bridge if washed away by flood or building a cyclone shelter home for the cyclone prone people in the coastal area. The State Government does it by budgetary means.
There is a need for a corpus fund to meet the exigencies of natural calamity for long term rehabilitation and restoration.
The GoM constituted by the GST Council for the purpose is examining the matter. The GST Council may levy one per cent additional tax on goods and services, which can be shared on fifty-fifty basis by the Centre and a State towards meeting the expenses in the event of a disaster.
The State can spend from its fund and the Centre also can support any State affected by a calamity from its fund.
(The writer is Additional Commissioner, GST, Odisha. The views expressed are his own)