Cars such as these are poised to get dearer in India. (Photographer: Dimas Ardian/Bloomberg)

Panel Of Ministers Mulls 1% Cess On Luxury Items, Tobacco To Help Farmers

A group of ministers headed by Assam Finance Minister Himanta Biswa Sarma is mulling a 1 percent agricultural cess on luxury goods to raise funds to help distressed farmers, a senior government official said.

The cess, the official said, would depend on Attorney General KK Venugopal’s view on whether any authority has the powers to levy it — be it the government or the GST Council. It could be levied on luxury cars or tobacco products, the official said.

The proceeds will be used for specific purposes and won’t be shared between state and central governments, the official said. Another senior official told BloombergQuint the items on which the additional cess would be levied will be decided after the Attorney General expresses his view.

The cess was proposed by the Kerala government during the GST Council meet held on May 4, the second official quoted earlier said. During the meet, convened to discuss a cess on sugar, Kerala Finance Minister Thomas Isaac proposed a consolidated cess that would benefit distressed farmers growing others crops as well, the official said.

Isaac didn’t respond to BloombergQuint’s calls on his mobile phone.

If approved, the cess would be levied on the tax—the way they were imposed prior to the Goods and Services Tax rollout. If an item is taxed at 46 percent (28 percent GST and 18 percent compensation cess), the 1 percent cess will be levied on the total tax.

Levying an additional cess may require a separate legislation and the setting up of a specialised fund, the second official quoted earlier said. This would cover a defined mechanism to administer the fund and disburse its proceeds, the official said.

Why The AG’s Opinion Is Crucial

The AG’s opinion is important as an interim order by the Delhi High Court questioned the validity of GST (Compensation to States) Act. The ruling pertains to a case in which a company that imported coal and paid clean energy cess on it prior to the GST regime was later asked to pay compensation cess under GST.

The Act gives powers to the central government to collect cess on demerit goods to compensate states for losses incurred during the first five years of GST’s implementation.

“Since multiple cesses were subsumed into GST with the intention of simplification a year ago, the concept of one more cess, in addition to the compensation cess, should be reconsidered,” said MS Mani, partner at Deloitte India.

While it’s necessary to alleviate farming distress, which could be in relation to the sugar sector at present or other sectors in the future, it'd be advisable not to tinker with the GST’s structure in each case, he added.

GoM Suggests Lowering GST On Ethanol

The GoM has also decided to lower GST on ethanol, the proposal for which will be placed before the GST Council in its next meeting on Jul. 21, Himanta Biswa Sarma told reporters today.

An official aware of the development said the GoM proposes to lower the GST on ethanol that’s used to blend with petrol and diesel from 18 percent to 12 percent. A proposal from the Oil Ministry to lower the GST on ethanol to 5 percent was rejected by the GoM, the official said.

Sarma said there’s no need for a cess on sugar as the government has decided to fix its minimum selling price at Rs 29 per kilogram. “Arrears (to farmers) have come down from Rs 23,000 crore to Rs 18,000 crore. Considering this kind of positivity, there's no need for the cess.”

An earlier proposal by the central government to impose a cess on sugar of up to Rs 3 per kg, to generate funds to help sugarcane farmers, met with stiff opposition from state governments.