Among other measures, the report suggests that inheritance tax, which was abolished in 1985, should be brought back as this would reduce concentration of wealth, widen tax base and enhance revenue.
A report prepared by Indian Revenue Services (IRS) officials has proposed raising income tax rate to 40% for those earning over Rs 1 crore a year for a limited time period, reintroduction of wealth tax for individuals with net wealth of Rs 5 crore and imposition of a one-time Covid-19 cess of 4% on taxable income of over Rs 10 lakh to mobilise revenue in the aftermath of the pandemic.
Among other measures, the report suggests that inheritance tax, which was abolished in 1985, should be brought back as this would reduce concentration of wealth, widen tax base and enhance revenue. It also proposed that equalisation levy or ‘Google tax’ should be raised by 1-7% for ad services and 3% from 2% for e-commerce to tap revenue from online services that have flourished during the pandemic.
Justifying the new 40% slab for super-rich, the report said: “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. In view of several European economists, taxing the wealthy would be the most “progressive fiscal tool”, as wealth is far more concentrated than income and consumption.” However, the report said the levy could be for a limited period and its proceeds can be utilised for a specific projects, whose progress can be monitored by the public.
Further, it said that a 4% cess on income above Rs 10 lakh per annum would help mobilise Rs 15,000–18,000 crore. For the upcoming financial year 2020-21, there is a target of 12% increase in the gross tax revenue at Rs 24.2 lakh crore. However, the slowdown in economy coupled with Covid-19 will dent the revenue collections especially in direct taxes, it said.
The IRS Association has sent the report to the Central Board of Direct Taxes (CBDT) which had sought inputs from field formations across the country on economic revival. This report, titled Fiscal Options & Response to Covid-19 epidemic (FORCE) has been prepared by a group of 50 young IRS officials with the senior-most official of the group being from 2014 batch.
The officials also recommended that a Give It Up campaign should be launched on the lines of LPG subsidy scheme, 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 only a year — for example: an individual could voluntarily opt for giving up his/her 80C deduction for a year,” it said.
The report has also proposed wide-ranging measures for providing relief to taxpayers to boost consumption including deferring tax payment for those who have lost jobs, allowing additional deduction from taxable income under section 80C for interest payment on house or automobile purchase.
For the welfare of MSMEs, the officials have suggested that cash transaction limit be restored to Rs 20,000 from Rs 10,000 currently. Tax audits for businesses below Rs 10-crore turnover be exempted for the current fiscal year, the report said. The current threshold is Rs 1 crore. MSMEs with tax liability of less than Rs 10 lakh should also allowed to pay the demand next year, the report said, adding that the measure will improve cash flow of nearly a third of small businesses.
Further, the report batted for back-loading of advance tax as corporate profits are likely to significantly suffer, at least in the first two quarters of this fiscal year. Advance tax schedule should be rationalised to mandate a payment of only 25% of total taxes till September 2020 without payment of interest. Currently, 45% advance tax is required to be deposited by September 15.
Moreover, the government should provide enhanced depreciation for buildings other than those used mainly for residential purposes (currently at 10%) and depreciation rate on plant and machinery (currently at 15%), the report said and added that the step would reduce tax flow and encourage capital expenditure.
Relief in late filing fee of TDS returns and late deposit of TDS has also been recommended. To stimulate liquidity for corporates, the option of making interest on late deposit of TDS a tax- deductible expense for FY 2020-21 can be explored, it said.