New Delhi: Raising income tax rate to 40 per cent for those who earn over Rs 1 crore a year, re-introduction of wealth tax, effecting a one-time Covid-19 cess of 4 per cent on taxable income of over Rs 10 lakh, direct cash transfer of up to Rs 5,000 a month for the poor, a three-year tax holiday for all corporates and businesses in the healthcare sector — these are some of the recommendations made by over 50 officers of the Indian Revenue Service (IRS) to help the economy recover from the lockdown.
The recommendations are part of a policy paper titled “Fiscal Options & Response to Covid-19 Epidemic (FORCE), which the IRS Association presented to the Prime Minister’s Office (PMO) and the Union Finance Ministry Saturday, sources in the organisation said. It has also been sent to the Central Board of Direct Taxes (CBDT), the sources added.
The paper, a copy of which is with ThePrint, delves into several steps the officers think are needed to revive the economy, by raising additional revenue without burdening the common man.
“The government needs to spend considerably more to revive the economy and it needs to raise additional revenue, but in ways that must not burden the already distressed common man,” the paper says. “In times like these, the so-called ‘super-rich’ have a higher obligation towards ensuring the larger public good.”
Tax the rich, paper argues
To this effect, the paper recommends raising the highest income tax slab rate, for total income levels above Rs 1 crore, to 40 per cent, or re-introduction of the wealth tax for those with a net wealth of Rs 5 crore or more.
“The government can then identify 5-10 most crucial projects or schemes entailing significant expenditure, which are likely to have a decisive impact on reviving the economy. The government should commit itself to the fact that the additional revenue raised through taxing the wealthy will only and only be utilised for these 5-10 projects or schemes,” the paper argues.
The paper also recommends an additional one-time cess of 4 per cent on account of Covid-19 relief, to be levied on those with a taxable income of more than Rs 10 lakh. The extra revenue generated through this could be between Rs 15,000 to Rs 18,000 crore, the officers estimate.
There should also be mobilisation of CSR funds for Covid-19 relief by extending tax incentives. Corporates, the officers argue, may be allowed to treat the salaries paid to their non-managerial staff during the Covid-19 crisis as part of their obligation under CSR, in order to incentivise continued wages during non-working days.
The paper also recommends a new tax-saving scheme, for example, a Covid-19 savings certificate, in order to mobilise more funds.
‘Increase equalisation levy for e-commerce firms’
The paper states that since the coronavirus economy is largely a digital/online/e-commerce one, the tax imposed on online companies such as Netflix, Amazon Prime and Zoom, among others, under the equalisation levy or “Google Tax” can be increased from 6 per cent to 7 per cent for their ad services, and from 2 per cent to 3 per cent for e-commerce work.
“The equalisation levy collection for FY 2017-18 was Rs 550 crore and FY 2018-19 was Rs 939 crore,” the paper states. “Going by the growth of business in the sector, the said increase in rate is likely to contribute a good amount of increased revenue. Moreover, since the levy is not part of the Income Tax Act, it would not be subject to the provision of India’s income tax treaties.”
‘Ensure DBT for the poor’
On the expenditure front, the paper suggests a direct cash transfer of Rs 3,000 to Rs 5,000 a month for the most economically disadvantaged 12 crore households over a period of at least six months.
It also argues that the crisis offers an opportunity to expand MGNREGA and make public works programmes such as building of rural roads, public health infrastructure, primary school buildings and the like the focus of the scheme.
“If envisioned and implemented in a targeted fashion, the scheme continues to hold tremendous promise, and can achieve three prized objectives together: provision of income support through employment for the jobless, creation of public infrastructure, and investment in human capital,” the paper recommends.
‘Let healthcare sector drive economy’
The paper also states that the government should ensure the health sector serves as the driving force for economic growth for the next year or so.
“From a taxation perspective, a complete tax holiday or tax break is proposed for the next three years for all corporates, firms and businesses operating in the healthcare sector,” it states. “The scope can have an exclusive definition, and must incorporate manufacturing of pharmaceuticals, medical grade masks, gloves, gowns, ventilators, testing labs, construction contractors involved in building of hospitals/primary health centers, etc.”
‘Steps to boost consumption’
In order to boost consumption and increase disposable income, the paper recommends measures such as allowing short-term capital loss suffered by retail investors due to the recent stock market slump to be set off from their salary, that is, sparing them any tax liability on the money lost.
It also wants the government to not consider bonuses or any other allowances given to employees with an annual pay of less than Rs 10 lakh as taxable income, to allow the deferral of tax payment by individuals who have lost their jobs for six months or until they find a new job, and providing increased deduction interests over the purchase of houses, automobiles, and electronic items that are made in India.
The paper also makes a slew of recommendations to boost the MSME sector, which, it argues, is bound to be the worst-hit by the crisis. These include a tax moratorium for MSMEs whose total tax liability is less than Rs 5 crore-10 for one year.
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