Around 50 Indian Revenue Service Officer of the Income Tax Department have suggested ways to help bring the economy back on track, which is in a 40-day lockdown due to the novel coronavirus, or COVID-19, pandemic. With the I-T Department expecting a major downfall in tax collections in coming years, officials have suggested innovative ideas that could boosting economic growth and thereby help increase tax revenue.
The Central Board of Direct Taxes (CBDT) has sought ideas from field units across India on ways to revive various sectors of the economy. A paper -- titled ‘FORCE’, which stands for Fiscal Options & Response to the COVID-19 Epidemic -- jointly prepared by the group of 50 Indian Revenue Service (IRS) officers hints at higher instances of non-filing of returns, increase in non-deduction of tax deductible at source (TDS)/withholding the deducted tax and cases of under-reporting the tax liabilities through bogus loss claims in future. They want the relief measures to be restricted to honest compliant taxpayers, especially those filing returns.
They officials also proposed some short (3-6 months) and medium (9-12 months) term measures to raise additional revenues for the government to help deal with the pandemic.
Here’s a list of the short-term measures:Taxing the wealthy:
The officials have proposed a higher tax regime for ‘super rich’ tax payers. The surcharge on the super-rich had recently been raised in Union Budget 2020-21, which, they peg, is expected to generate a mere Rs 2,700 crore to the exchequer. They have proposed that this segment be taxed through two alternative means both of which can be imposed for a limited, fixed period of time. One, raise the highest slab rate to 40 percent for those total income above Rs 1 crore from 30 percent at present; and two, re-introduce wealth tax for those with a net wealth of Rs 5 crore.
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“The said surcharge has not been revised from long time. With companies operating in India and deriving profits through their permanent establishments, it is time that a flourishing market like India, with its huge prospects, flexes its customer base muscle,” the report, a copy of which is in Moneycontrol possession, stated.COVID relief cess:
However, they want the coronavirus-related relief activities be specifically defined u/s 2. They suggest amendments to section 2 and 37.
Another suggestion under this head is to allow corporates to treat salaries paid to non-managerial staff during the COVID-19 crisis as part of their obligation under CSR.
They also call for donations to the Chief Minister’s Relief Fund from the CSR fund of corporates be treated at par with the PM CARES Fund as requested by several state governments. “Contributions to PM CARES Fund and CM Relief Fund should be allowed to be counted as CSR not only for the current fiscal but for FY22 as well,” the report stated.
They propose a one-time opportunity to companies to contribute a portion of their unspent CSR funds till FY20 to the PM CARES Fund and utilisation of a portion of such unspent money for business purposes. They feel companies should be allowed to transfer a part of these unspent funds to the PM CARES Fund within a prescribed time, say by June 30, and be allowed to release a part of these funds for their business purposes.New tax saving scheme like coronavirus savings certificates on the lines of NSC
They recommend amendments to Section 13A and 13B of the I-T Act to allow political parties and electoral trusts to invest in the aforementioned fund.New amnesty scheme for collection of undisputed demands
Here’s a list of the medium-term measures:Reintroduction of the Inheritance Tax:
They propose raising the capital gains accruing out of inherited properties of OCI (Overseas Citizenship of India) citizens be raised by 10 percent from 30 percent and 20 percent from short and long-term gains at present, respectively. Buttressing their argument, they explained: “The reason being that at various stages in the life of an OCI, the inherited properties and persons holding them would have benefitted from the facilities and subsidies offered by the Government of India.”Rationalisation of equalisation levy:
Officials are of the view that companies operating during the coronavirus pandemic are largely digital/online/e-commerce entities. The report cites consumption of online services, especially web streaming services, such as Netflix and Amazon Prime and Zoom, and stated that increased dependence on online commerce has made this sector flourish.
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“The increased business of these e-commerce/online streaming/web services companies provides an opportunity to increase the said tax rates by 1 percent to 7 percent for advertising services, and to 3 percent (from 2 percent earlier) for e-commerce companies,” the report stated.
The equalisation levy collection for FY19 and FY18 was Rs 939 crore and Rs 550 crore, respectively. They peg the increase in the tax rate to contribute “a good amount of increased revenue” and since the levy is not part of the I-T Act it would not be subject to the provisions of tax treaties signed with other countries.Give It Up campaign:Just like the ‘give it up’ campaign on LPG subsidies where many well off people voluntarily surrendered their LPG subsidy benefits, the tax department can encourage the super-rich and those willing to give up at least one tax subsidy/tax deduction/tax concession for a year. For example, an individual could voluntarily opt for giving up his/her 80C deduction for a year.