Kerala becomes the first state to impose 1% flood cess on GST

In August 2018, severe floods hit Kerala, disturbing millions of lives. It was the worst flood Kerala had witnessed in nearly a century. The government declared it as a Level 3 calamity.

With an aim to rebuild Kerala, starting from 1 June, the government will levy 1% flood cess on inter-state movement of goods and services. This calamity cess aims to raise funds and provide relief and rehabilitation to people who were affected by last year’s floods.

Also Read: Proposal to levy calamity cess at 1% in Kerala: GST Council to decide

With this initiative, Kerala has now become the first state to impose calamity cess. The state government projects to raise Rs 600 crore in a year via the cess. The government will use this amount for several activities under the Rebuild Kerala Programme.

The government will not impose cess on daily essentials that draw a total of 5% GST. The 5% GST is divided into two — 2.5% state GST (SGST) and central GST (CGST) each. Nevertheless, this will not comprise services such as economy air travel in spite of they attracting 2.5% SGST. As per the government notification, these services will be levied with 1% cess.

All other goods and services that draw an SGST of 6%, 9%, and 14% will attract 1% cess. 0.25% cess applies to precious metals — gold and silver. The government levies 1.5% SGST on these metals. Also, the input tax credit does not apply to cess.

An additional tax will not be levied on goods, which are sold by small traders whose yearly turnover is less than Rs 1.5 crore. The state government made this decision to lessen the impact of cess. Cess will apply only to retail transactions that are made within Kerala.

The plan to levy additional cess was initially declared in the state’s financial budget. The implementation of cess was supposed to go live starting from 1 April, but the plan went on hold because of the Lok Sabha elections. The GST Council has even accepted the state government’s plea to impose cess for two years.

Kerala’s initiative to raise funds via cess can turn into a precedent considering the rate at which natural calamities are striking across the country.