Another "disaster cess"​ in the offing to manage natural calamities?

A panel of State Finance Ministers headed by Mr Sushil Modi, Deputy CM, Bihar, has examined the possibility of imposing "disaster cess" as an additional indirect tax and will be seeking the views of the Attorney General on such a levy.

It will be recalled that post the recent floods in Kerala, and losses caused by it to the State, the aspect of relief to affected areas/States has come into sharp focus.

There can be no dispute about the  purpose or intention of providing such relief. It’s legitimate, of course. However, the method of raising revenue is questionable. Whether an over-riding cess like the erstwhile “Education cess” (EC), “Secondary and higher education cess” (SHE), “Swach Bharat cess” and “Krishi kalyan cess” should be re-introduced into the indirect tax system?  Is that the best option we have?

Just around a year ago, GST was introduced with considerable fanfare as a "super indirect tax". A tax to subsume all Central, State and local indirect taxes including cesses. The grand slogan used then for GST was "One Nation - One Tax". Thus explicitly declaring that one tax will replace the hotch-potch of several layers of taxes.  A tax aimed to simplify the tax system and improve compliance besides reducing tax cascading arising because of multiple tax silos.

Significantly, a tax for "calamities" already exists in the form of "National Calamity Contingency Fund". This tax was introduced in 2001 on specified goods (“luxuries” i.e. motor vehicles, cellphones and "sin" goods such as pan masala, cigarettes and other tobacco products). These goods were first listed in the Seveth Schedule of the Finance Act 2001. As a matter of fact, NCCD still continues to operate even after GST was implemented and applies to tobacco products. However, NCCD collections have considerably dropped after GST in 2017-18. Its not clear if this aspect of potential drop in NCCD was considered or factored into Government calculations when implementing GST.

In this backdrop, any attempt to succumb to temptations and re-introduce an over-riding indirect tax (as “disaster cess”) in addition to the NCCD will defeat the purpose of GST. There will always be legitimate reasons to raise additional revenue, but we cannot open the flood gates and introduce new indirect taxes outside the “laxman rekha” of GST. By doing this we will be reverting to multiple tax silos causing cascading and complexities.

Quite certainly there are better, simpler and less cascading ways of doing it.


Pic credit : Floods in Kerala Wash Away Festive Fervour of Onam, Bakrid (Photo Credits: mallupage Instagram)