Tax Officers Suggest 10-Point Taxation Plan To Shore Up Covid-19 Funds

A group of tax officers has suggested several steps to shore up government revenue in the fight against the Coronavirus (Covid-19) pandemic.

These include a hike in the so-called super-rich tax, a Covid-19 cess and higher tax on multinational companies operating in India.

In its 10 suggestions to generate more revenue, Indian Revenue Service Association has also mooted re-introduction of wealth tax, raising the Google tax and inheritance tax, among others.

A 44-page paper titled ‘FORCE’, or 'Fiscal Options & Response to COVID-19 Epidemic', dated April 23, has been sent to the Central Board of Direct Taxes Chairman PC Mody and the board members.

The paper, accessed by Press Trust of India, has suggested that tax relief should be restricted to only honest and compliant taxpayers, especially those filing returns on time. There have been many instances of non-filing of income tax returns, hike in non-deductions and withholding of Tax Deducted at Source, apart from rising under-reporting of tax through bogus loss claims.

A 'give it up campaign' has also been proposed. The tax department can encourage the super-rich and others to give up at least one tax subsidy/tax deduction/tax concession for a year.

The paper has been prepared by 50 senior tax officers after CBDT sought ideas from field officers on ways to revive the economy and improve revenue collection.

Super-Rich Tax

Among the short-term measures suggested by the paper is a hike in super-rich tax to 40 percent from 30 percent for those earning between Rs 1 crore and 5 crore annually. The paper also seeks re-introduction of wealth tax for those earning more than Rs 5 crore per year.

The super-rich tax, introduced in Union Budget 2019-20, may generate only Rs 2,700 crore in government revenue this year, the paper says. But a hike in the levy and a wealth tax together can generate Rs 50,000 crore in government revenue, it says.

MNC Tax

For the medium-term, the FORCE paper has suggested raising additional revenue from foreign companies operating in India. This can be done by levying surcharge of 2% on MNCs earning Rs 1-10 crore and 5% surcharge on income exceeding Rs 10 crore. "The surcharge has not been revised (for) long time. So it is time that a flourishing market like India, with its huge prospects, flexes its customer base muscle,” the paper says.

Covid-19 Cess

Further, the paper has called for imposing a Covid-19 cess to help mobilise additional revenue. A one-time cess of 4 percent can help finance capital investment, it said.

"The proposed cess can mop up an extra revenue of Rs 15,000 crore to 18,000 crore. To mitigate the extra hardship on the middle-class, the cess may be made applicable only in cases where the taxable income is greater than Rs 10 lakh," the paper said.

Crucial Projects

Another suggestion is for the government to identify 5-10 crucial projects/schemes, in terms of investment, and those which are likely to have a decisive impact on reviving the economy. Additional revenue generated should be used only to fund these identified projects.

"Such visibility over the direct and immediate utilisation of resources is likely to ensure greater resonance and acceptance amongst those being taxed, and provide greater satisfaction and a direct sense of contribution to this populace," the paper said.

Even as the paper focused on revenue generation, it sought to ensure that measures should not burden the already distressed common man. And one way to achieve this is to make shopkeepers, fruit vendors, stall owners and small enterprises to pay income tax as they "make lakhs per month and the income in cash is invisible in any book".

CSR Activities

FORCE has proposed tax incentives for CSR activity undertaken during the pandemic. Companies should be allowed to undertake coronavirus-related relief activities and claim the expenditure incurred as a business deduction under Section 37 of the Income Tax for FY21.

Covid-19 Savings Certificates

The paper has also pitched for a new tax-saving scheme, a la the National Savings Certificate, wherein individuals and Hindu Undivided Families can be offered additional deduction of up to Rs 2.5 lakh made in this fund in line with that made under Section 80(C) of the Income Tax Act.

The amount invested can have a five-year lock-in period and can generate interest income for investors in line with what government pays for various small savings schemes.

To facilitate this, Section 13(A) and Section 13(B) of Income Tax Act has to be amended to allow political parties and electoral trusts invest in the aforementioned fund, the paper said.

New Amnesty Scheme

According to the paper, there could also be a new amnesty scheme to collect of undisputed demands, as the ongoing Vivaad se Vishwaas scheme covers only the demands under dispute.

There is a proposal to re-introduce inheritance tax, discontinued in 1985, wherein the tax rate varied from 10 to 85 percent. There is also a suggestion to raise capital gains tax on overseas Indians profiteering from inherited properties.

Equalisation Levy

Another long-term measure proposed is the equalisation levy, also known as 'Google Tax', introduced in the Finance Act, 2016, on certain "specified services" of certain non-resident businesses, largely those providing advertisement space and services.

At present, such businesses are taxed at 6 percent on a gross basis but the 2020 Finance Bill proposed to expand the scope of this 'equalisation levy' to include consideration received by e-commerce operators from e-commerce supply or services, and taxed at a rate of 2 percent.

Under this head, yhe government collected Rs 939 crore and Rs 550 crore in FY19 and FY18, respectively. Further, there are calls for hiking the tax rate by 1% to 7% for advertising services, and to 3% from 2% earlier for online retailers.

As part of saving on costs, the government has been taking various steps, including freezing inflation-linked allowances for its employees and pensioners that will help it save around Rs 37,000 crore.