Kerala To Levy Disaster Cess On Items With GST More Than 5%

Sand bags stacked in front of the entrance of a house submerged in floodwater in Kainakary village in Alappuzha, Kerala. (Photographer: Prashanth Vishwanathan/Bloomberg)

Kerala introduced a disaster relief cess to raise additional revenue in its state budget today.

The government will levy a 1 percent cess on the value of goods and services taxed at 12 percent, 18 percent and 28 percent, Kerala's Finance Minister Thomas Isaac said. It will be levied for two years, as approved by the Goods and Services Tax Council. That will help the state, which last year witnessed the worst flood in over a century, raise an additional Rs 600 crore each year.

This comes after a ministerial panel earlier this month allowed Kerala to levy an additional 1 percent calamity cess on the value of goods and services.

To avoid cascading of the tax, the calamity cess will be levied only on the value of supplies made within the state by registered dealers, the budget document said. This means the levy will be only on retail transactions.

The state does not intend to impose a cess on items that are taxed at 5 percent or below, except gold, silver and platinum ornaments, Isaac said. A cess of 0.25 percent will be levied on gold, silver, platinum ornaments, precious stones, imitation jewelry, diamonds, among other items, that fall in the fifth schedule of GST rates.

The prescription of the disaster cess only on B2C transactions is quite a well thought move; thus helping prevent a cascading impact.

Abhishek Jain, Tax Partner, EY India

Small dealers who have availed the Composition Scheme, that allows taxpayers to pay a flat GST without the facility to avail input tax credit, will be excluded from the levy, according to the budget speech.

Kerala earlier also sought permission to levy a state-specific cess to raise additional revenue for the calamity-hit state. But the Centre didn't favour it.