New Delhi (IANS) Increasing the tax rates on the rich, levying a COVID-19 cess, increasing the surcharge on MNCs are among the measures suggested by a group of Indian Revenue Service (IRS) officers to boost revenue mobilization as a response to the reduced economic activity and lower collections during the pandemic.
In a paper sent to the Central Board of Direct Taxes (CBDT), a paper has been prepared jointly by a group of 50 Indian Revenue Service (IRS) officers of the Income Tax Department on policies and suggestions for meeting the challenges in the process.
"Working from home, they have come together to leverage their combined knowledge, experiences, and commitment to building a healthy, strong and prosperous India. The paper, titled 'FORCE' though reflective of their young energy and idealism, stands for - Fiscal Options & Response to COVID-19 epidemic," the IRS Officers Association said.
On revenue mobilization, with the economic impact of COVID-19 and the consequent impact on revenue collections brought out in the preceding parts of the report, the officers said it is essential to discuss certain measures to raise additional revenues for the government to deal with the crisis in the short and medium term.
The officers said that in times like these, the so-called "super rich" have a higher obligation towards ensuring the larger public good. This is for multiple reasons - they enjoy a higher capacity to pay with significantly higher levels of disposable incomes compared with the rest, they have a higher stake in ensuring the economy springs back into action, and their current levels of wealth itself is a product of the social contract between the state and its citizens.
Most high-income earners still have the luxury of working from home, and the wealthy can fall back upon their wealth to cope with the temporary shock.
Therefore, this segment of the population can be taxed through two alternative means, both of which can be imposed for a limited, fixed period of time.
It has been suggested to raise the highest slab rate to 40% for total income levels above a min. threshold of Rs. 1 core or re-introduction of the wealth tax for those with net wealth of Rs 5 crores or more.
"Administratively, the former will be simpler to implement. However, the revenue gain associated with both options should be worked out to see whether the gains attached with the latter option score better in terms of a cost-benefit analysis," it said.
On international taxation, the suggestion can be to increase the surcharge applicable to the Higher income Foreign Companies having a Branch Office/Permanent Establishment in India. The said surcharge has not been revised for some time now, and with companies operating in India and deriving profits through their PEs, it is time that a flourishing market like India with its huge prospects flexes its customer-base muscle. Such measures are time-tested, especially in the context of European countries. However, in order to make the measure more palatable, and for increasing its legitimacy in terms of the "fiscal-tax connect" (i.e. effective utilization of the additional resources raised), it is proposed to keep the amount in a separate kitty.
Say, for example, that the additional revenue mop-up through either of the above steps is Rs 50,000 crores. This amount should be placed in a separate kitty, almost like an escrow account. The government can then identify 5-10 most crucial projects/schemes entailing significant expenditure, which are likely to have a decisive impact on reviving the economy. The costs attached with such projects will be worked out, and these projects should be listed on a Government website, accessible to the entire public. The government should commit itself to the fact that the additional revenue raised through taxing the wealthy will only and only be utilized for these 5-10 projects/schemes.
The IRS officers have also proposed a COVID Relief Cess. As opposed to surcharges, cess are more broad-based since they are levied on every taxpayer. Further, they are likely to mobilize more revenue as well. The current rate of cess is 4 per cent (including 2 per cent Health Cess and 2 per cent Education Cess).
Thus, an additional one-time cess of 4 per cent on account of COVID Relief (could be called COVID Relief Cess) could help finance capital investment in COVID Relief work. The extra revenue mobilized on this account could be between Rs 15,000 - 18,000 crores. 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 lakhs.
They have also suggested mobilization of CSR Funds for COVID relief: The tax incentives for CSR should be extended at the time of National disaster. Those companies who are undertaking the COVID relief activities under CSR should be allowed to claim as expenditure incurred for the purpose of business deduction section 37 for FY 2020-21 only. This incentive helps in mobilizing CSR funds for the disaster management.
The corporates may be allowed to treat the salaries paid to their non-managerial staff during the COVID crisis as part of their obligation under CSR.