The GST Council will at its meeting on Friday consider a proposal to impose a sugar cess to compensate cane farmers.
The proposal by the ministry of consumer affairs, food and public distribution for a 5 per cent sugar cess will be outside the purview of the compensation cess under the goods and services tax, and hence will need a separate law.
“The sugar cess proposal will be taken up by the council. It will be a different cess from the compensation cess and will need a separate act of Parliament or by way of a provision in the Finance Act,” said a government official. The government may choose to go ahead with this by way of an ordinance, he added.
Currently, only the compensation cess is within the purview of the GST law, and is levied on a handful of luxury and demerit items in the 28 per cent GST slab to compensate states for the revenue shortfall due to GST implementation for the first five years.
Meanwhile, many states are opposed to the idea of a separate cess under the GST as it goes against the principle of the uniform indirect tax.
States that do not produce sugar are against the proposal, arguing they will not receive a portion of the cess collected from their taxpayers. Sugar producing states like Karnataka are also vehemently opposing the move.
“There is expected to be a stormy discussion on the subject with most states against the proposal. It beats the entire objective of the GST,” said a state government official.
A few states have proposed increasing the GST rate on sugar from 5 per cent currently as an alternative to imposing a cess.
On Wednesday, the Union Cabinet approved financial assistance at the rate of Rs 5.50 per quintal of cane crushed in the sugar season 2017-18 to sugar mills to clear cane dues of farmers. The direct payment of Rs 15.40 billion to farmers will help clear less than a tenth of the amount sugar mills owe them.
Last month, a high-powered panel led by Transport Minister Nitin Gadkari decided to consider three proposals to lower sugarcane arrears that have touched over Rs 200 billion due to a record harvest of over 32 million tonnes.
These included levying a cess on sugar, a production-linked export subsidy and lowering the GST on ethanol from the current 18 per cent.
“We might soon place all three proposals before the Cabinet,” Food Minister Ram Vilas Paswan said after the high-powered meeting in which he participated.
The GST Council will also take up the proposal to reduce the GST rate on ethanol from 18 per cent to 12 per cent. It is again a proposal by the ministry of food and public distribution. “The matter may be referred to the fitment committee,” said another official.
The council is also expected to provide relief to the industry by simplifying the return filing procedure.
The council, chaired by Finance Minister Arun Jaitley, may approve the ‘hybrid model’ recommended by a ministerial panel led by Bihar Deputy Chief Minister Sushil Modi where a buyer will receive input tax credit based on a seller uploading the invoices, irrespective of whether he has actually paid the tax. There will be a single form for filing returns. There is also a proposal for a 2 percentage point discount in the GST for consumers who make digital payments.