A panel, headed by Bihar Deputy Chief Minister Sushil Modi, on Monday put on table three options to raise additional funds under the goods and services tax (GST) to help Kerala and other states in their post-disaster relief and rehabilitation work.
The levy could either be a state-specific tax levied as state GST, or there could be a supplementary disaster response fund, parallel to the existing national disaster response fund (NDRF). As a third option, the group of ministers (GoM) would consider strengthening the existing NDRF.
The GoM concluded its first meeting on Monday. It will submit its report in November.
It will also decide whether the levy would be a cess or an increase in the GST rate and whether it should be levied across the country or only in the state facing the calamity.
“The existing funds cater to the relief and rehabilitation aspects of disaster mitigation, but the reconstruction, which is also costly, suffers from lack of funds. This tax will predominantly address reconstruction,” a senior official in the finance ministry told Business Standard.
The GoM will send a questionnaire comprising about 20 questions to all states to understand their preference on the nature of the levy and discuss its outcomes in the subsequent meeting.
While the central tax officials are keen to establish a supplementary entity, states are keen to have a state-specific levy, especially since the costs of reconstruction differ across states. They think that leaving the disaster-funding decisions to the GST Council may delay and complicate the process.
“While we prefer the state-specific levy, the end result could be a combination of the same along with a supplementary disaster response fund,” Thomas Isaac, Kerala’s finance minister, told Business Standard.
“While it costs Rs 100,000 to reconstruct a damaged house in India, the cost for the same in Kerala turns out to be four times that. Thus, the need for a state-specific levy,” he added.
States have their own state disaster response fund (SDRF), apart from the NDRF, to finance disaster response. While the former is funded in a 90:10 ratio by the Centre and the state, the latter is funded through the national calamity and contingency duty (NCCD) levied as Customs and excise duty on certain products.
On the one hand, the NDRF kitty via NCCD has been reducing over the years due to the taxes on certain products getting subsumed under the GST. NCCD used to be levied on mobile phones and cars in the pre-GST regime. Now, only crude oil and some tobacco products remain.
As a result, the inflow of funds to the NDRF reduced from Rs 57 billion in 2015-16 to Rs 65 billion in 2016-17, down to Rs 37 billion in 2017-18 (FY18).
On the other, the central government recently accepted the 14th Finance Commission (FFC) recommendation to pay 90 per cent of the share to fund SDRFs. For the first three years of the FFC period, Centre paid only 60 per cent of the share.
In addition, the Centre failed to adequately fund the SDRFs due to the revenue shortfall. As against an allocation of Rs 122 billion to SDRFs in FY18, the release was Rs 94 billion.
“The reason for the new tax is that both the avenues are falling short,” said the official quoted earlier.
In the subsequent meetings, the GoM will discuss whether there would be a permanent fund under the levy, what would be the norms for disbursement, and which entity will manage the fund.