GST Council Forms GoM to Review Natural Calamity Cess Implementation

GST Council Constitutes GoM to Examine Natural Calamity Cess

Background & Purpose

The Goods and Services Tax (GST) Council has constituted a Group of Ministers (GoM) to explore the feasibility and framework for levying a special natural calamity cess. This move comes as part of efforts to strengthen revenue mobilization for states facing disasters. The decision was taken in the GST Council meeting held on December 21, 2024.

Key Members of the GoM

The GoM on revenue mobilisation for natural disasters is led by Suresh Khanna (Finance Minister, Uttar Pradesh) as the convenor. Other members include:

• Ajanta Neog (Assam)
• Om Prakash Choudhary (Chhattisgarh)
• Kanubhai Desai (Gujarat)
• K N Balagopal (Kerala)
• Premchandra Aggarwal (Uttarakhand)
• Chandrima Bhattacharya (West Bengal)

Objectives & Terms of Reference (ToR)

The GoM will deliberate on the following key issues:

1. Uniform Policy for Calamity Cess – Propose a framework for states to levy special cess in case of natural disasters.
2. Legal Feasibility – Examine constitutional provisions allowing states to impose additional taxes under the GST regime.
3. Scope of Taxation – Decide whether the cess should be imposed on specific sectors or across all goods and services.
4. Targeted Taxation – Assess whether the cess should be levied only on B2B or B2C transactions or both.
5. Classification of Natural Calamities – Define the criteria for declaring a calamity eligible for cess levy.
6. Rate Structure & Duration – Recommend applicable cess rates and the period for which it should be imposed.
7. Alternative Revenue Mechanisms – Explore alternative ways for states to mobilize funds without altering the GST structure.

Historical Precedent: Kerala’s Calamity Cess (2019)

This is not the first instance of a state seeking special tax measures post-disaster. In January 2019, the GST Council approved a 1% calamity cess for Kerala for two years to fund rehabilitation work after the 2018 floods. The cess was levied only on select goods and services consumed within the state.

Demand for Calamity Cess in Andhra Pradesh

During the December 2024 GST Council meeting, Andhra Pradesh Finance Minister Payyavula Keshav proposed a 1% cess on luxury goods to fund relief work for the September-October 2024 floods. The proposal aligns with Kerala’s past approach but requires broader legal and policy considerations.

Reconstitution of GoM for GST Revenue Analysis

Alongside the calamity cess review, the GST Council has reconstituted another GoM on Revenue Analysis to assess state-wise revenue trends. Led by Goa Chief Minister Pramod Sawant, this GoM comprises representatives from:

• Bihar – Samrat Chaudhary
• Chhattisgarh – O P Choudhary
• Gujarat – Kanubhai Desai
• Andhra Pradesh – P Keshav
• Maharashtra – Ajit Pawar
• Punjab – Harpal Singh Cheema
• Tamil Nadu – Thangam Thennarasu
• Telangana – M B Vikramarka

Key Responsibilities of the Revenue GoM:

1. Sector-Specific GST Policy Reforms – Identify industries requiring policy interventions.
2. Unified Enforcement Platform – Suggest mechanisms to curb tax evasion.
3. Revenue Trend Analysis – Study state-wise revenue patterns and sector-wise contributions.

Legal and Economic Implications of a Calamity Cess

Constitutional Considerations

Under Article 279A(4) of the Constitution, the GST Council has the authority to recommend special taxation provisions. However, any deviation from a unified GST structure raises concerns over federal taxation powers.

Economic Impact on Businesses and Consumers

• Business Burden: Imposing an additional cess may increase costs for businesses, especially in disaster-prone states.
• Consumer Impact: If levied across sectors, a calamity cess could lead to higher prices for essential goods.
• State Revenue Benefits: A structured cess can provide quick fiscal relief to disaster-hit regions without waiting for central funds.

Key Takeaways for Businesses and Taxpayers

1. Be Prepared for Policy Changes – Businesses operating in disaster-prone states must anticipate potential cess implications.
2. Sectoral Impact May Vary – The cess might target only specific industries, such as luxury goods or high-end services.
3. Temporary Yet Impactful – Any calamity cess will likely be imposed for a fixed duration but could still affect short-term financial planning.
4. Legal Framework Matters – If implemented, businesses must review GST compliance and legal provisions for claiming input tax credits.

Conclusion: The Road Ahead

The decision to impose a natural calamity cess is a balancing act between revenue needs and economic stability. While it provides a crucial fiscal tool for states facing disasters, it also raises concerns over compliance, inflation, and GST uniformity. Businesses and taxpayers must stay updated on GST Council developments to navigate these potential changes effectively.