New Delhi: The government on Friday set up a seven-member ministerial panel to study the legality of imposing a “disaster levy" to raise funds for states struck by natural calamities, such as the recent floods in Kerala.

After the 30th meeting of the Goods and Services Tax (GST) Council, finance minister Arun Jaitley said it was important to find a well thought-out mechanism to raise funds for natural disasters as it will have long-term implications.

Following the floods, Kerala had suggested a 10% cess on the state component of the GST. Jaitley said the proposal from Kerala needs to be decided at a high level of maturity as it will set a precedence for future events. In case the levy is imposed by a particular state government, there is a risk of businesses moving to another state, reasoned Jaitley.

“So, this is not something that can be decided on the spur of the moment." Jaitley also said that Kerala finance minister Thomas Isaac was also on the same page, and the government will have to explore options before finalizing a mechanism.

A finance ministry statement said that Bihar deputy chief minister Sushil Kumar Modi will be the convenor of the panel, which will give its advice by 31 October. The panel includes Isaac, Assam finance minister Himanta Biswa Sarma, Maharashtra finance minister Sudhir Mungantiwar, Odisha finance minister Sashi Bhusan Behera, Punjab finance minister Manpreet Singh Badal and Uttarakhand finance minister Prakash Pant.

The group of ministers will look into several issues, including the possibility of a pan-India levy or state-specific tax, and whether the tax will be levied on all items or sin and luxury goods. The panel will also decide on the scale of disaster, which would require funds in addition to what is provided under the national disaster relief fund (NDRF).

The committee will have representation from north-eastern states, coastal states and hill states, which are prone to natural calamities. The Constitution amendment brought in to facilitate GST’s rollout has a provision that in the event of a natural calamity, a special rate can be imposed with the permission of the GST Council.

Some experts, however, did not favour changes in the GST architecture to raise resources for dealing with natural calamities. M.S. Mani, partner, Deloitte India, said any change to the GST framework would make it more complex for businesses. “The introduction of any cess either at the national level or at the state level should be avoided to the extent possible, as it would make the entire GST process, including the invoicing and return filings, much more complex for all businesses."

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