IRS officers for super-rich tax hike amid coronavirus outbreak; govt riled

It also proposed increasing equalization levy for ad services from 6% to 7% and for e-commerce from 2% to 3%.
A report by a group of 50 young officers of the Indian Revenue Service (IRS) on enabling smooth recovery of the Indian economy from the coronavirus (Covid-19) disease shock has courted controversy with the finance ministry distancing itself from these recommendations and initiating inquiry into the matter. The report suggested a hike in the tax slab for the super rich, a Covid cess, an amnesty scheme for undisputed tax demands, and reintroduction of the inheritance tax. 

In a note called F.O.R.C.E. (Fiscal Options & Response to Covid-19 Epidemic), the group has also proposed expenditure rationalisation measures, including direct cash transfer of Rs 3,000-5,000 for six months for the poor, a three-year tax holiday for corporate and businesses in health care, scaling down defence spending, and zero tax for health care workers in 2020-21 (FY21).

The report, prepared by trainee officers or those who are just out of the academy, was forwarded by the IRS Association to the Central Board of Direct Taxes (CBDT) for consideration.
“The government needs to raise additional revenue, but in ways that must not burden the already distressed common man,” the report said.

Arguing that in times like these, the so-called “super rich” have a higher obligation towards ensuring the larger public good, the group has proposed either raising highest income-tax (I-T) slab rate to 40 per cent for those earning over Rs 1 crore or reintroducing wealth tax for those with net wealth of Rs 5 crore 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 score better in terms of a cost-benefit analysis,” it said.

Earlier in the day, the report got leaked to the social media where some people started reacting negatively to the suggestions. 

The report also did not go down well with the finance ministry. In fact, the CBDT said necessary inquiry is being initiated. The board said no permission was sought by the officers before going public with their personal views and suggestions on official matters — a violation of extant conduct rules. 

The CBDT in a statement said it never asked the IRS Association or these officers to prepare such a report. Sources in the ministry, however, hinted that additional steps may be announced to provide relief and inject liquidity into the system.

Finance ministry sources said it is “an ill-conceived report put up by a group of officers, giving suggestions on increasing taxes in difficult times of the pandemic and releasing the same to the media is an irresponsible act of a few officers”.
In addition, the report recommended an increase in surcharge applicable to the higher income foreign companies having a branch office or permanent establishment in India. The two measures will help raise around Rs 50,000 crore additional revenue, which it suggested should be placed in a separate kitty, to spend on five-10 crucial projects or schemes, which are likely to have a decisive impact on economic revival.

“These projects should be listed on a government website, accessible to the entire public. Additionally, the website should display a live spending meter against each of these projects/schemes, which will mention the expenditure incurred to date,” it said.

Besides, it recommended introducing a 4 per cent one-time Covid relief cess, which will help mobilise Rs 15,000-18,000 crore to help finance capital investment in Covid-relief work. “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,” said the report.

Currently, a 2-per cent health cess and 2-per cent education cess are levied.

It also proposed increasing equalisation levy for ad services from 6 per cent to 7 per cent, and for e-commerce from 2 per cent to 3 per cent.

It also favoured reintroducing the inheritance tax to reduce concentration of wealth, widen tax base, and enhance revenue. “Inheritance tax is levied mostly in developed countries, at rates as high as 55 per cent. In India, it was in force till 1985, payable on a slab basis. Such a tax may eventually lead to reduction in tax rates,” it said.

The report added that earlier procedural issues and information asymmetry led to the tax being abolished, whereas in today’s digital age, it is enforceable and implementable, as information is easily accessible and there is improvement in administrative framework over the past few decades.
Contributions to PM-CARES Fund and CM relief funds should be allowed to be counted as corporate social responsibility not only for the current fiscal year, but also for 2021-22, it said.

The officers also recommended extension of benefit of 80G deduction to companies that have opted for lower corporation tax regime. “They would not be inclined to contribute funds to the PM-CARES Fund, as they are currently not eligible to avail of tax deductions on contributions made against the income in FY21,” it explained.

A new tax saving scheme like Covid Savings Certificate (like National Savings Certificate) could be introduced to mobilise more funds.

In line with the industry’s key demand, the report said the I-T department can explore a “zero scrutiny year” for the current fiscal year. “This will be a bold step, but this is required at this time of crisis. The department should go for minimum search-and-seizure operations in the current year, at least till September 30,” it said, adding a few sectors like education, health, agro-based industries, and transport can be avoided for search-and-seizure operations in the short term.

Moreover, it recommended a new amnesty scheme for collection of undisputed demand, in addition to the ongoing Vivad Se Vishwas Scheme, which only covers demand under dispute. “However, a large part of the outstanding demand pertains to those which are crystallised and for which no dispute exists. In order to incentivise collection of such demand, the government may launch an amnesty scheme waiving interest under Section 220(2) in part orfull. A similar approach can also be adopted for undisputed penalty amount pending for collection,” said the report.

The group also proposed tax discounts and rebates in percentage points for timely compliance by assessees.

As for rationalisation of expenditure, the panel favoured scaling down of defence expenditure and spending envisioned for ambitious projects, such as bullet train on routes where any work is yet to take off. “The freed-up resources can be used for more immediate pressing task of economic revival and ensuring a guaranteed income stream for those who have lost their livelihood,” it said.

Besides, it suggested a direct cash transfer of Rs 3,000-5,000 a month can be worked out to the bottom 120 million households, for a period of at least six months.

It pointed out that India’s Covid stimulus package announced by the government amounts to 0.8 per cent of gross domestic product, which, “pales in comparison with 11 per cent in the US, 15 per cent in the UK, and 16 per cent in Malaysia”.

The Ministry of Health & Family Welfare can use a significant portion of the Rs 67,111-crore budgeted for the whole year in the first quarter of FY21, it said.

Total capital expenditure budget for Budget FY21 is Rs 4.12 trillion, of which Rs 1.51 trillion pertains to infrastructure work in the Ministry of Railways and Ministry of Road Transport & Highways. Of the balance Rs 2.5 trillion, Rs 1 trillion could be used for Covid-related work.

Of the revenue expenditure of Rs 26.3-trillion budgeted in FY21, 10 per cent savings equivalent to Rs 2.63 trillion can be done across the board to be used for Covid-related work, the report pointed out.

Finance ministry sources said neither the IRS Association nor any group of officers mentioned in the report was ever asked by the government to give any report on the subject.

“In fact, it was not even part of their duty to prepare such a report,” one of the sources said.

The CBDT said the impugned report does not reflect the official views of the board and the finance ministry.

“People should completely disregard such a report. In fact, the finance ministry is doing its best to provide relief and liquidity to the system and ease the lives of the people,” a source said.

The ministry will not hesitate to take any further steps which may be needed, sources said.

In fact, the IRS Association also said the report does not purport to represent the official view of the entire IRS or the I-T department.

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