Brushing aside concerns raised by members, Finance Minister T M Thomas Isaac told the Assembly on Friday that he would go ahead with the 'Kerala Flood Cess'. The cess, which will be in force for two years, is expected to be collected from August 1.
“How else can we hope to increase our revenue income,” Isaac said while speaking on the Finance Bill.
“And this is not a permanent levy,” he said. The Finance Bill has proposed a two-year tenure for the cess. Isaac insisted that the cess would not push up prices.
He argued that the very fear that prices might go up could push up prices. “If you keep saying that prices would go up then it would,” Isaac said, hinting that the fear drummed up by the opposition could make it easy for traders to jack up prices.
Anyhow people know that prices will go up, so why not just ramp up, would be the line of thought.
Isaac also argued that the cess was negligible. “Earlier, when the Value Added Tax regime was in place, the UDF had increased VAT rates from 12.5 per cent to 14.5 per cent. This is just one per cent,” Isaac said.
Congress MLA V D Satheesan then intervened to say that the price issue was “psychological”.
“Just give me one instance where traders had reduced prices when taxes were reduced,” he asked. “But even a seemingly minor increase in tax would prompt traders to push up prices disproportionately,” Satheesan said.
However, the finance minister views this authority to clamp flood cess as a political victory of sorts.
He had always argued that the GST regime would deprive the states of their authority to put in place independent revenue-generating measures.
“The GST has taken away such rights of the state. The calamity cess now offers Kerala a small manoeuvrability within the GST system,” he said.
It was for the first time that the GST Council had allowed a state to impose a levy outside of the GST tax slabs, he reminded the House.
Isaac also argued that the cess would not lead to trade diversion. Some of the ruling party members, too, had pointed out that consumers may opt to purchase goods from neighbouring places like Mahe, where there is no cess.
“If at all there is diversion, it would be marginal,” the minister said. “The levy is just one per cent. I don't think anyone is going to Mahe to purchase a bottle of Coke just because the prices are negligibly lower on the other side,” Isaac said.
The finance minister also argued that there was no need for traders to even marginally increase prices. “The taxes on most of the goods have come down considerably under the GST that a one per cent cess can be easily absorbed by them. They don't have to pass it on to the consumers,” Isaac told the Assembly.
According to Isaac, the prices cannot go beyond the maximum retail price (MRP). “When the earlier Valued Added Tax (VAT) regime was in place many of these products were subjected to multiple taxes (in the form of sales tax, excise duties and octroi) that added up to over 30 per cent. Now the total tax has come down to 18 per cent and 12 per cent under the GST regime. Where is the need to pass on an insignificant one per cent cess when they have already gained considerably,” Isaac said.
However, what happens in the case of products that do not have a maximum retail price stamped on them, like say ice creams, electronic items or four-wheelers.
The finance minister did not provide an assurance.
If the sellers were unwilling to pass on the GST benefits to consumers, as Satheesan had pointed out in the Assembly, there is no reason to believe that they would not take advantage of the flood cess.
Fact is, even the MRP does not cushion the consumer from a price hike. There are no rules governing the MRP.
Even the same product can have different MRPs.
Bottled water is an example; the drinking water of a same company sold at a railway station and a multiplex sport different MRPs. The fear now is that manufacturers will revise the MRP of products sold in Kerala to accommodate the one per cent cess, so that the burden is passed on to the consumer.
The cess will be charged on the invoice price of the goods or service, which is the price before the GST is added. Isaac expects Rs 600 crore a year from the flood cess.
