The GST Council at its meeting on Friday is expected to discuss a cess on luxury and sin goods to help states affected by natural calamities. However, the council is unlikely to rationalise the rates further because of lower-than-expected revenue collection this fiscal.

The Kerala government had proposed a 10 per cent cess on state GST to pay for the rehabilitation work after the state was hit by one of the worst floods in nearly a century.

The Union finance ministry, however, is in favour of a one per cent temporary national calamity cess which could be imposed whenever a natural disaster hits a state or states.

The council will examine whether and how a cess on luxury and demerit goods can be increased to raise additional funds for states affected by natural calamities.

Officials said the exact contours of the cess will be finalised and approved by the GST Council.

Another crucial aspect is whether the cess will come with a sunset clause, a decision that will be taken by the council.

“If the government goes ahead with such a measure for Kerala, it may need to carefully evaluate the modality of its implementation so that it does not distort the overall GST structure and is easy to implement for the industry,” said Abhishek Jain, an indirect tax partner at EY India.

Kerala finance minister Thomas Isaac has said the southern country needs at least Rs 20,000-25,000 crore for relief and reconstruction, adding that this was a “tentative figure” which could go up.

The Centre’s solution is seen as a bid to control the damage done by its refusal to provide significant grants to Kerala for reconstruction and rehabilitation and, more importantly, its refusal to let foreign countries, including the Gulf states, to help with funds.

Several states, including Kerala and Andhra Pradesh, had earlier opposed the levy of cess to help the ailing sugar sector, arguing that such a measure would distort the GST structure and set a wrong precedent.

Tax cut

Officials indicated that there was little possibility of the council cutting the tax rates as the average revenue collection has been below expectations.

The large-scale rate cuts on white goods in July have led to a further fall in revenues in August. So far this year, the total shortfall in GST collections from the target was Rs 16,473 crore with the average monthly collection at Rs 96,705 crore during April-August.