With the Kerala Cabinet deciding to approach the Goods and Services Tax Council to allow it to levy a 10% cess on GST to finance relief efforts, here is a look at whether this is permissible under GST laws, and the problems with implementation that could arise if it is.
Can states levy a cess over and above GST?
Yes, states can levy such a cess if and only if it is approved by the GST Council. However, this is an unlikely outcome as it would set a precedent where any State will be able to request levying a cess above GST, which defeats the purpose of a uniform tax rate across the country, according to a Finance Ministry official speaking on the condition of anonymity.
Has there been such a demand before?
Some States had earlier requested a sugar cess, which was denied by the GST Council.
If approved, what are the challenges?
According to tax analysts, there are several procedural details that will have to be worked out before the cess is implemented. One has to do with whether the cess will apply only on intra-State supplies, or whether suppliers of goods to Kerala from other States also have to impose the cess. Another aspect that will need clarity is that since Kochi is an international port, will imports also bear the burden of the cess?
When will the GST Council decide on this?
The formal request must first be presented to the Council. Following this, there is a precedent for the Council to hold an unscheduled meeting via video conference. The Council had late last year held such a meeting to discuss options regarding drastically falling GST revenues following a slew of rate cuts.
