Calamity Cess on GST – A Boon or A Bane?

Article 279A(4)(f) of the Constitution grants power to  the GST Council to levy a special tax during any natural calamity or disaster in order to raise additional revenue from GST.

Kerala Government had introduced Kerala Flood Cess last year following the Monsoon Floods of 2018 and started levying 1% cess on GST for two years from 01^st August, 2019 on the value of Goods & Services taxed at 12%, 18% & 28%.

On similar lines there had been stories in the media claiming that the Ministry of Finance was also considering to impose a Calamity Cess on GST @ 1% to tide over the economic crisis faced due to Covid-19 pandemic, excluding the goods and services covered under the 5% slab rate of GST.

Ministry sources stated that the Ministry of Finance has withdrawn the proposal of levying Calamity cess as within the current financial state of affairs throughout the COVID-19 pandemic, such proposal of introducing a calamity cess can be nothing but an adversity itself.

The Ministry considered the following factors for not introducing Calamity Cess on GST.

1. Due to the lockdown, many businesses are facing low sales volume, a crisis for demand of goods & labour challenges would be adversely affected with the applicability of Calamity Cess.

2. The situation of the economy at present is not so appropriate to pay any cess as there are already pay cuts, retrenchments, incurring losses and need funds for the survival of businesses itself.

3. Any such measure will weaken the shopper’s sentiment and market’s energy. Levying of Calamity Cess can result in another calamity for the retailers and customers to pay additional tax on GST.

4. While this additional levy may help the Government in raising funds, taxpayers & GSTIN will also need to modify their IT systems for incorporating this change which will be a challenge these days.

5. No other country has tried yet to increase their taxes from the present tax regime during COVID19 to manage their resources.

Therefore, tinkering taxes and cess would not be a prudent option.

CA Karan Goyal | Akash Bansal | Anshu Gupta | Email: taxconsiliario@gmail.com