GST Council Meet: Extra tax likely to support Kerala : 29-09-2018

The Goods and Services Tax (GST) Council on Friday set up a committee of seven state finance ministers to examine the legality and recommend the methodology for levying an ‘additional tax’ to raise revenue for floods-ravaged Kerala.

The Council also reviewed the GST revenue collections by the states at its 30th meeting, and found that though collections have improved marginally in the current finacial year, the states’ overall GST revenue deficit is still a worrisome 13%.

Finance minister Arun Jaitley hinted that the overall GST revenue (Centre and states) this year might be short of the nearly `13.2 lakh crore overall (GST+compensation cess) target.

The committee examining the idea of a new impost to assist Kerala would comprise representatives from states prone to natural calamities like northeastern and hilly states and coastal ones, Jaitley said. He added that a decision taken by Council on mitigating revenue loss for a calamity-hit state would set a precedent and would also be used in the future. The Council also considered Kerala’s proposal to have an extra tax on state GST within the state.

The committee will look into five issues flagged by the Council, including whether the new tax should be levied only with the state concerned or should it be an all-India levy, and whether it should it be on specified luxury or sin goods only or on a broader base.

While a cess to cover for losses due to natural calamity would need a change in law – the methodology for such a move is complex –, Jaitley said the GST law provides for a special tax over and above the GST rate with the Council’s approval.

Kerala finance minister Thomas Isaac said the law provides that the Council can impose a tax for a temporary period in the GST framework to help states to deal with exigencies. “We have not thought out the details, so the GoM will look into it. An additional 1% tax on some commodities was discussed,” Isaac said.

“The introduction of any cess either at national level or at state level should be avoided to the extent possible as it would make the entire GST process, including the invoicing, return filings, etc, much more complex for all businesses,” MS Mani, partner, Deloitte India, said.

The committee of state FMs would also look into whether the National Disaster Response Fund (NDRF)/State Disaster Response Fund (SDRF) mechanism is sufficient to deal with calamities and also define circumstances where a ‘calamity tax’ can be imposed as also the legal aspect of imposition of such a tax within the GST framework. “We will have a seven-member group of ministers which in the next few weeks will make a recommendation,” Jaitley said.

Most of the smaller northeastern states reported GST revenue surplus but 25 other states saw their deficit narrow this fiscal. The states facing highest deficit include Punjab, Himachal Pradesh, Uttarakhand, Jammu & Kashmir and Chattisgarh.

According to the GST Compensation law, the Centre would provide the funds to the states to bridge the deficit for the first five years of GST. The deficit is calculated against a 14% year-on-year increase in the states’ revenue with FY15-16 revenue collection taken as the base year.

As for the Centre, the shortfall is around 20% now. Answering a question on whether the GST revenue target would be met by the government, Jaitley said, “Currently, we are in the middle of the year and there is festival season coming. We will try and come as close to the target.” He added that the government was ahead of the target on direct tax mop-up, which would help meet the fiscal deficit target.

Source : Financial Express

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