GST Council may hike luxury cess on cars to aid disaster-hit states

28 Sep 2018


The GST Council may consider an increase in the cess applicable on luxury cars to raise funds for states affected by recent floods and other natural calamities, after the central government increased its calamity fund support to states a day earlier.

It is proposed to increase the cess from the current 20-22 per cent to a maximum of 25 per cent, which would take total GST incidence on luxury vehicles to 53 per cent from 50 per cent at present.
The Goods and Service Tax Council currently meeting in New Delhi may approve the proposal to impose the highest cess on cars, ie, 25 per cent, that can be imposed without an amendment to the GST (Compensation to States) Act. 
The current GST on cars is 28 per cent while the cess stands at 20-22 per cent, which adds up to 48-50 per cent.
Currently, a compensation cess of 20 per cent is imposed on motor vehicles other than sports utility vehicles with engine capacity exceeding 1500cc, while a 22 per cent cess is imposed on SUVs.
It is likely that the compensation cess is levied on the value of cars while keeping the current tax rate, ie, GST plus cess, intact, sources said.
Several states, including Kerala, Himachal Pradesh and Nagaland were hit by severe floods. The worst hit was Kerala where nearly 500 people lost their lives while over 1.2 million people were displaced and the state suffered economic losses of over Rs20,000 crore.
Collections from the compensation cess—levied on demerit goods, or those whose consumption is considered unhealthy—is used to compensate states for the losses that they incur in first five years of the GST’s rollout.
According to Article 279A (4) of the Constitution, the (GST) Council can make recommendations to the central government and states on “any special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc”.
The GST Council may also discuss introducing a cess for helping states affected by natural calamities. This cess would solely be for helping disaster-hit states, said another government official.
Kerala finance minister Thomas Isaac tweeted that he had recently met union finance minister Arun Jaitley to discuss imposing a cess on select items for a specified period.
“GST must be made flexible to accommodate an unforeseen urgent demand for resources as in the case of natural calamities,” Isaac tweeted after meeting Jaitley. “Kerala welcomes the suggestion of honourable FM for a national level cess on selected commodities for a specified period to help such states. GST Council to discuss.”
A panel of officials from the finance ministry has been looking at various mechanisms to raise additional funds, in line with what the Kerala government has been asking after the devastating floods swept through the southern state leading to severe loss of life and property.

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