A special demand by Andhra Pradesh to raise funds through additional levy of 1 per cent Goods and Services Tax (GST) for damage caused due to rains and floods in the state opened floodgate of similar requests for disaster-specific levy by other states in the 55th GST Council meeting in Jaisalmer on Saturday. Once Andhra Pradesh raised its concerns about being in need of funds for recovering from the natural disaster, other states of West Bengal, Telangana, Karnataka also underlined instances of floods and droughts in their regions to the Council, which then decided to form a Group of Ministers on this issue.
“On the request of the state of Andhra Pradesh, the Council recommended that a Group of Ministers be constituted to examine the legal and structural issues, and recommend a uniform policy on imposition of levy in case of a natural disaster/calamity in the state,” an official release after the Council meeting stated.
The demand for additional GST levy for disasters, broadly on the same lines as an earlier flood-cess levy by Kerala in 2019, was discussed in detail in the Council, Finance Minister Nirmala Sitharaman said after the Council meeting. “The GoM will decide what it should be named, whether every disaster can be given, which disaster declared by who will have to have that power, will the GST Council then have the format. The GoM will decide on all these details and then the decision would be taken on that by the Council,” she said.
Uttar Pradesh, West Bengal, Telangana have volunteered to be a part of the proposed GoM, Sitharaman said, adding that other ministers who want to be part of it can also join it.
After the Council meeting, Andhra Pradesh’s Finance Minister Payyavula Keshav said the state had experienced unprecedented rains and floods due to which most of the parts were inundated for 12 days. “…on this situation, our financial situation is not that good due to the unjust bifurcation of the state and legacy liabilities, so for people to come back to normalcy, it takes about Rs 15,000 crore that has been the estimate submitted to the Government of India. To give us the leverage to come back to normalcy, we just suggested a small 1 per cent cess (under GST),” he said.
Keshav said they have proposed this extra 1 per cent levy, which will consist of 0.5 per cent Central GST (CGST) and 0.5 per cent State GST (SGST), over and above the 28 per cent levy in their state for transactions related to luxury items.
Andhra’s demand was supported by West Bengal also. West Bengal’s Finance Minister Chandrima Bhattacharya said the legal aspect of such a proposal has to be looked into. “Cess, under the legal provisions, is only in the hands of the central government. If the state is given the responsibility of collecting cess, can the GST Council give that permission? I have asked that aspect should be looked into,” she said.
Explaining the earlier levy of flood cess by Kerala, Sitharaman said it had sought permission of the Council to levy 1 per cent cess on B2C sales in 2018. “It was a request made by Kerala in 2018, it was sent to a GoM, the GoM considered it and post that the agenda was placed in the Council, which then approved it in 2019,” she said. The Finance Minister said when Andhra Pradesh brought the proposal to the Council, other states supported the need to facilitate the extra levy like Kerala.
Telangana, Himachal Pradesh and West Bengal cited the instances of floods and cloudbursts in their regions over the last few years. Another point raised during this discussion was the need to define “disaster” for which such an additional GST rate can be levied. “…another point has come about whether disaster is only flood, only cyclone, why is drought not considered as disaster. This was raised by the Karnataka minister about north Karnataka. Then West Bengal said that at the time of levy by Kerala, it was collected as cess. They raised a correct technical point of cess belonging to the central government, under GST there is no right to collect cess. So how will you collect cess for disaster?”
”After a lot of discussion, I suggested that the Council should take a decision about whether every time such incidents happen in any state, does the Council have to agree immediately after they invoke it in the Council and whether there is a process for it or not. Since the tax burden will be on the public (of such additional tax), it has to be determined by right procedure. So everybody agreed, even Andhra’s minister agreed that a GoM should be formed,” Sitharaman said.
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