Officials aware of the developments said that levying a Covid cess on production would require a new law altogether and go against the principle of taxation on consumption under goods and service tax (GST).
“A state does not have the right to levy a cess on sale outside the state, the provision is not there under integrated goods and service tax (IGST),” Chhattisgarh commercial taxes minister TS Singh Deo said, who was part of seven-member GoM meeting on Thursday.
“The GoM has suggested that a one-time grant of the shortfall, of about Rs 250 be given by Centre,” he added.
Sikkim had proposed to levy a Covid cess of 1% of turnover on pharmaceutical sector and Rs 0.1 per unit on power generated for two years, such that additional revenue can be generated to meet expenses amid the second Covid wave.
While electricity falls under the ambit of GST no tax is levied on it. During the discussions, a legal opinion on whether states can put taxes on consumption of electricity has been proposed, a second official said.
The GoM has opined that a Covid cess was not feasible, and even if it was recommended it would be sought by other producer states as well, leading to legal issues.
In 2018, a GoM set up under former GST Council member and deputy chief minister of Bihar Sushil Modi had recommended to the Council that Kerala be allowed to levy 1% cess for two years to fund rehabilitation work in the state. The Kerala government had made the request to levy the cess after the 2018 floods in the state.