A group of States’ Finance Ministers has decided to seek opinion from all the States on ways and means to raise additional resources to meet expenditure on account of natural calamity or disaster. It also plans to get advice from the Attorney General (AG) on the issue.

The group met here on Monday under the convenor-ship of the Deputy Chief Minister and Finance Minister of Bihar, Sushil Kumar Modi. While the Finance Minister of Kerala TM Thomas Isaac, Finance Minister of Punjab Manpreet Badal and Finance Minister of Odisha Sashi Bhusan Behera attended the meeting, two others Finance Ministers, Sudhir Mungantiwar (of Maharashtra) and Prakash Pant (of Uttarkhand) could not attend the meeting.

The group has to examine the issue regarding ‘Modalities for Revenue Mobilisation in case of Natural Calamities and Disasters’ and submit its report by October 31. The issue cropped up after flood-hit Kerala approached the GST Council for imposing a cess to raise additional resources.

“NDRF (Natural Disaster Response Fund) and SDRF (States Disaster Response Fund) are not sufficient to meet the requirements,” Modi told reporters while adding that the size of the fund was ₹6,450 crore during 2016-17 and ₹3,660 crore during 2017-18. Since the requirement is high, the fund has to be provided through Central Budget. Since most of duties have been subsumed in the GST, contribution from duties for the funds has reduced. Hence, a way to raise additional resources is being explored.

To prepare questionnaire

Modi also mentioned that since the group has limited number of representations, it has decided to prepare a questionnaire comprising 15-20 questions and send it to each State. These questions will be based on six-point terms of reference received by the group. These points include — should the entire burden of cess be borne by the affected State only?, should it be an all-India levy and can it be confined to luxury or sin products?, is the National Disaster Response Fund (NDRF) mechanism sufficient or more can be done?, should there be a distinction between natural calamities?, and what is the legal methodology available?

There is a provision of special tax under the GST regime. Following a Constitutional Amendment, sub-section (4) (F) of newly inserted article 279 A prescribes: “Any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster.” The schedule of the Goods and Services Tax (Compensation to States) Act, 2017, provides for imposing a cess up to the rate of 15 per cent ad valorem on “any other supplies”. However, there is no clarity in the text of the law on imposing a cess for purposes other than compensating States in case there is a revenue shortfall.

Based on the views from States, the group will meet again, most next month, to discuss the best available mechanism —additional tax or cess. The group may also discuss the issue with the 15th Finance Commission. Similarly, AG’s views would also be sought for legally vetting it. Once finalised, the report will be submitted to the GST Council which will take a final decision on the recommendations.

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