Ministerial Panel Approves Disaster Cess For Kerala Under GST

Trees and houses are partially submerged in floodwaters in this photograph taken in Kainakary village in the district of Alappuzha, Kerala, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

A ministerial panel allowed Kerala to levy an additional 1 percent calamity cess on the value of goods and services under the new indirect tax regime.

“Kerala will be permitted to have 1 percent cess on the value of goods and services across all or select items for two years,” state's Finance Minister Thomas Isaac told reporters after the meeting of group of ministers in Delhi today.

The items on which the additional cess will be levied will be selected by the state, Bihar's Deputy Chief Minister Sushil Modi, also the panel's head, said. “If other states urge the Goods and Services Tax Council to allow them to levy this additional cess in case of a calamity, it will decide if the state should be allowed or not.”

If the GST Council gives its approval, Kerala would be the first state to levy a calamity cess and set a precedent for other states, Issac, a member of the Modi-led panel, said.

The 32nd GST Council meeting is scheduled to held on Jan. 10.

The move to seek the council's approval comes after Kerala sought permission for a state-specific cess to raise additional revenues for the flood-ravaged state. While the central government was not in favour of a state-specific cess, it said a time-bound national disaster cess can not only help Kerala, but also be an institutionalised fundraising mechanism for such disasters in any part of the country. The Modi-led panel had in October last year decided to seek states' views on whether a state-specific or a nationwide “disaster tax” should be levied under the GST.

The council had earlier said the cess will be structured in such a way that only a pre-determined amount will be collected within a specific time limit. If approved, it may see a minor increase in the prices of one or two specifically identified goods, it said.

Relief For Small Businesses

Another panel, headed by Minister of State for Finance Shiv Pratap Shukla, recommended the council to allow dealers under the composition schemes to file GST returns annually but pay tax quarterly.

It also suggested that the composition scheme be extended to all service providers with an annual turnover of up to Rs 50 lakh. Currently, the composition scheme can be availed by manufacturers, traders and restaurant service providers.

The service providers will have to pay a flat GST of 5 percent, Modi said, adding the panel was also of the view that the threshold for registering under the GST regime should be increased from Rs 20 lakh.

Modi, however, said that the committee could not finalise the new threshold. The council will now decide the new exemption threshold for registering under the GST regime.

Delhi suggested that the exemption threshold should be kept at Rs 40 lakh, while Bihar recommended the limit at Rs 50 lakh, Modi said.

The states had suggested the panel to allow taxpayers with an annual turnover of more than Rs 50-60 lakh to pay a fixed tax of Rs 5,000 a year, and businesses with annual turnover between Rs 60 lakh and Rs 75 lakh to pay a fixed tax of Rs 10,000-15,000 per annum.

Also, the group of ministers suggested that 1.5 crore dealers will be given free accounting software, Modi said.