In order to fulfill the fund requirements for natural calamity struck states, the Centre has decided to hike the cess on luxury cars. The understated idea is to make the poor richer and refute the idea of making the rich richer.
The cess is subject to a hike with a ceiling percent of 25%. The final rate would be discussed at the forthcoming GST meeting, scheduled for September 28, after the GST (Compensation to States) Act is amended.
The current rate of compensation cess is 20% which is imposed on motor vehicles with engine capacity exceeding 1500cc. Apart from that, there is a cess of 22 percent on SUVs. The compensation cess is levied on demerit goods – the goods which are considered as unhealthy for consumption.
Recently, Kerala had to face a situation of terrible floods – owing to which the state has incurred losses of around Rs 20,000 crore. According to Article 279A (4) of the Constitution, the (GST) Council can make recommendations to the central government and states on “any special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc”.
The GST Council may also discuss introducing a cess for helping states affected by natural calamities. This cess would solely be for helping disaster-hit states, said another government official.
Here is what Kerala Finance Minister Thomas Issac said after meeting FM Jaitley: “GST must be made flexible to accommodate an unforeseen urgent demand for resources as in the case of natural calamities.”
“Kerala welcomes the suggestion of honourable FM for a national level cess on selected commodities for a specified period to help such states,” he added.
With pros, there are also cons. The idea of increasing the cess also comes with its drawbacks. The cess hike on tobacco (which is also a demerit good) might increase the chances of smuggling.