Calamity Cess Put on Hold Indefinitely

Kerala Finance Minister T M Thomas Isaac on Wednesday, 6 February, 2019 conceded two of the biggest demands made by the opposition during the ongoing Budget session of the Assembly. He put on indefinite hold the calamity cess of one per cent, and slashed the sales tax on aviation turbine fuel in all airports in the state from 28.7 per cent to five per cent.

The Budget announcement that invited the harshest criticism was the one per cent cess on all goods and services falling in the three higher GST slabs: 12, 18, and 28 per cent. Essential goods in the zero and five per cent GST slab were exempted. There was widespread fear that a whole range of items that even the lower income groups could not live without would turn costly. Gold and diamond was also subjected to a 0.25 per cent cess.

Isaac's win, CPM's loss

Isaac had won this right to impose a calamity cess after a prolonged fight at the GST Council. This was the major demand that Isaac had raised at the Council after the August floods. It was also felt that public would not find the cess to be a shock as they had prior knowledge. This was not to be. Disapproval swelled right after the Budget announcement. Isaac attempted to contain the anger. He said that traders would not pass on the burden of the cess to the consumers as they were already enjoying the benefits of a shift to the GST regime. He even announced that charging above the MRP would be illegal.

However, sources said that by then the CPM had lost the perception battle. The party felt that the cess would be a political liability on the eve of the Lok Sabha elections. The party is also said to have persuaded Isaac to keep the decision in abeyance at least till the elections were over. The finance minister had targeted Rs 600 crore from the measure.

Procedural excuse

Though he did not roll back the decision, Isaac said that it would be implemented only after a notification was issued. Normally, Budget announcements automatically come into effect from April 1, the start of a fiscal year. Isaac cited some procedural issues for postponing the decision. "The functioning of the GST Network may be affected because this cess is applicable only in Kerala. The rates will have to be tweaked for Kerala alone. (The GSTN is the national backbone of the GST regime). So we first have to hold discussions before taking a decision," he said in the Assembly on Wednesday.

Isaac himself betrayed the political calculation behind the move to defer the cess. "Now you will have to rework the political speeches that you might have already prepared," he told the Congress members. It is now said that the cess will come into force from August 1, after the vote on account for three months will come to an end and the full budget comes into play.

Pinarayi grounded

An even bigger victory for the opposition would be the decision to cut aviation fuel tax to five per cent in all the four airports in the state.

The opposition had moved an adjournment motion a couple of days ago on Monday against the government move to offer a one per cent relief in aviation fuel tax to the new Kannur airport alone. Chief Minister Pinarayi Vijayan was accused of favouring Kannur development at the cost of Kozhikode's Karipur airport.

Then, the chief minister had said that relief was given to Kannur alone because it was the only airport that was included in the Union government’s Ude Desh ka Aam Naagrik (UDAN). He also said that the airports at Thirvananthapuram, Kochi, and Kozhikode were not eligible for similar concessions.

By reducing the tax to five per cent, it looks like the government had been forced to swallow its own words. This cut, from over 28 per cent to five per cent, is considerably deeper than what the LDF government had planned earlier. In 2017, the LDF cabinet had decided to slash the fuel tax by five per cent at all airports. This was left unimplemented, but later Kannur airport alone was given a relief of one per cent.

Muslim League leader M K Muneer, while moving the adjournment motion on January 4, had said that the Karipur airport in Kozhikode needed a bigger boost than even Kannur. He pointed out the fact that three domestic flights from Karipur - to Hyderabad, Chennai and Bangalore - had been cancelled.

Opposition leader Ramesh Chennithala had said that a reduction in fuel tax would attract more flights to the state, and thereby improve its tax revenue. "There are over 300 aircraft that fly over the Kerala skies a day. These flights could be compelled to touch down to any of our airports if the tax was reduced. Now they fly to Sri Lanka and other places to fill up," Chennithala said.

Isaac, however, said that the decision would cost the exchequer Rs 100 crore.