Anyone visiting Kerala now may not be able to physically see the damage caused by the recent floods. It is only in conversations with the locals that one hears about the devastating impact that the floods have had on the infrastructure and economy of the State. The fact that everyone should do whatever they can to fund the cost of restoring the State’s infrastructure is a given. Although a single source may not be able to fund the entire cost, GST can make a substantial contribution to the restoration kitty.

Disaster cess

At their September 28 meeting, the GST Council decided to set up a seven-member Group of Ministers to decide either on levying a cess in the case of disasters, or allow Kerala to levy an additional SGST. Both these options are proposed on only a few products and for a short duration. While the State government proposed a 10 per cent cess on the State GST component, the Centre is of the view that it will be operationally difficult to implement and is suggesting the levy of a small disaster cess for some items across the country for a limited period.

Both these proposals have their limitations. By nature cesses are supposed to be for a short term and should be removed once the purpose of the levy has been fullfiled. However, in the past, many cesses have continued well beyond their proposed period and there is no evidence to confirm that they were used for the purposes for which they were levied.

Taxpayers would also be cess-averse as they cannot claim input tax credit on cesses paid which distorts the supply chain architecture which GST is supposed to protect. Levy of a cess will need a change in laws and the government may need to bring in an ordinance to provide for it. The Attorney General of India has opined that since the constitutional validity of a cess has been challenged in the Supreme Court, the council should wait for the verdict before levying it. The Centre has agreed to not include the cess as part of compensation calculations. The additional Kerala SGST levy may not be able to make a substantial contribution to the kitty due to its limited scope.

E-way bill fee?

Essentially, what is needed is a short-term levy that could contribute a significant sum to the GST kitty. The GST Council and the State government should think of using the e-way bill system as a tool to garner the funds. The e-way bill platform has been structured to handle up to 75 lakh e-way bills daily. The GST Council can propose a token fee of ₹100 for every e-way bill generated on the portal. This amount can either be deducted from the electronic credit ledger of the taxpayer or he can make this contribution through a one-time payment. Taxpayers will not fret over the lack of input tax credit on an amount of ₹100.

Assuming that 65 lakh e-way bills are generated daily on the portal (the capacity of 75 lakh may not be reached every single day due to cancellations), the levy of ₹100 for four months would yield a revenue of ₹7,800 crore — no small amount for a law that is just over a year old.

The levy can be only on inter-State movement of goods so individual State governments need not tinker with their GST laws. This also would need a change in rules and possibly an ordinance but is a levy which is worth attempting due to its wide reach and limited tenure. The key is to stop the levy once the target has been reached.

The writer is a chartered accountant

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