Kerala will be the first State to impose calamity cess after the introduction of Goods and Services Tax (GST). This will mean buying various goods will become costlier and services such as staying in a hotel will get expensive.

The GST Council has approved levy of cess on intra-State supply of goods and services within the State of Kerala at a rate not exceeding one per cent for a period not exceeding 2 years, Finance Minister Arun Jaitley, said after the Council meeting.“It (imposition of cess by a State) is already provided under law,” he added.

Following a Constitutional amendment, sub-section (4) (F) of the newly inserted article 279 A prescribes: “Any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster.” Similarly, the schedule of the Goods and Services Tax (Compensation to States) Act, 2017, provides for the imposition of cess up to the rate of 15 per cent ad valorem on “any other supplies”.

Seventeen types of taxes and 26 types of cess of Centre and States together were subsumed into the GST and any additional revenue measure is permissible only after the GST Council’s nod. Accordingly, after a devastating flood this monsoon, Kerala approached the GST Council to levy cess to meet the cost of rehabilitation and reconstruction. The State Cabinet, in its meeting on August 21, approved a proposal for a 10 per cent cess. Initially, the GST Council referred the matter to a Group of States’ Finance Minister which favoured imposing the cess.

Kerala’s Finance Minister Thomas Issaac said the cess will help in collecting nearly ₹500 crore. He categorically said that such a move will be inflationary.

Abhishek Jain, Tax Partner at EY India, said while this additional levy should help Kerala victims, companies as well as GSTN will need to modify their IT systems for incorporating this change. “Also, to some extent it dilutes the One Nation One Tax concept,” he said.