Some states have called for levying a Covid cess in their territories to meet the huge shortfall in tax receipts. The suggestion, initially voiced by Sikkim, came up at the GST council meeting on Friday, and was referred to a committee to decide.
It now remains to be seen if Sikkim’s demand will spark off a domino effect from other states as well. It appears that states like Goa, Arunachal Pradesh and Meghalaya also would like to propose levying a state COVID cess.
The question, particularly if the demand finds resonance from other states as well, is whether it will solve a significant problem, or whether it will add to the structural distortion of GST. Already there are four different slabs of tax structure in GST.
The request comes on top of the vexatious pending issue of GST compensation to states. Almost all states are struggling with lower than average tax receipts in recent years, first due to the economy slowdown and then, due to repeated lockdowns that disrupted business activity as well as spending sentiments.
Sikkim’s demand is to impose a nominal COVID-19 cess for two years on its pharmaceutical and power sectors. The proposal will now be studied by a group of ministers (GoM) that is to be constituted. It will submit its recommendation after deliberation in two weeks, it is learnt.
Friday’s GST council meeting was the first in nearly eight months, delayed by the second wave of the pandemic, as well as the discordant note on which the last meeting ended over the matter of compensation to states.
