Cess for Disaster Relief

The rapidly changing climate and the rising temperatures have led to a spate of floods, droughts, and other natural disasters. Not only do the natural disasters cause the loss of life and limb, but cause loss of public and private property, damage the economic potential of the region, cause a drag on the economy of the region and rake up huge bills for the Government for its search, relief and rescue missions.

?This has led to the demand for the creation of a special cess for disaster relief in the country.?

What is a disaster relief cess?

The levy of any new tax or cess to create a corpus of funds which would be used for disaster relief is known as a disaster relief cess. These taxes can be levied on select products like fossil fuels and coal to not only deter their use but also gradually wean the users off the products.

Can it be done?

• In India, especially after the Kerala Floods, the government started to tinker with the possibility of creating a disaster relief cess by including it in the GST regime.
• However, the proposal is still under consideration.
• Another way to raise funds for the disaster relief operations would be through catastrophe bonds.

Catastrophe bonds

• Catastrophe bonds are similar to corporate bonds and associated fixed-income security products.
• However, they come with a higher coupon rate to factor in higher risks and it is yet to be seen if they would get any traction on the markets.

Why is it in the news?

Kerala government, after permission from the GST council, has decided to implement a 1% flood cess on all goods and services which will be transacted within the State starting from August 1. The amount will be used for post-flood reconstruction projects.

However, the cess will not be imposed on the goods and services invite a tax below 5%.? An exemption has also been granted to all traders who have opted for composition tax.