A hike in income tax rate to 40 per cent for those earning an annual income of over Rs 1 crore for a limited time period, the levy of a COVID-19 cess of 4 per cent on taxable income over Rs 10 lakh, a re-introduction of wealth tax for individuals with net wealth of Rs 5 crore are some of the suggestions included in a report titled ‘Fiscal Options & Response to COVID-19 Epidemic’ prepared by Indian Revenue Services (IRS) officials.
Later in day, Finance Ministry officials claimed the report by “some IRS officials” was “ill-conceived”, and its circulation to the media through the IRS Association Twitter handle and website was “an irresponsible act of few officers” who will be asked to explain their “misconduct”.
This was followed up with an official statement by the Central Board of Direct Taxes (CBDT) stating that it never asked the Association to prepare such a report and “necessary inquiry” would be conducted.
Among other measures, the report suggested bringing back inheritance tax to reduce concentration of wealth, widen tax base and enhance revenue. The report has been prepared by a group of 50 young IRS officials, with the senior-most official in the group being from the 2014 batch.
“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,” the report said, adding that the 40 per cent rate could be for a limited period and its proceeds can be utilised for specific projects.
Calling the “corona economy” as “largely a digital/online/e-commerce economy”, it also proposed that equalisation levy, or ‘Google tax’, should be raised by 1 per cent to 7 per cent for ad services and 3 per cent from 2 per cent for e-commerce to raise revenue from online services which have seen increased consumption during the pandemic.
It also said a 4 per cent cess on income above Rs 10 lakh per annum would help mobilise Rs 15,000-18,000 crore. Gross tax revenue is targeted to increase by 12 per cent to Rs 24.2 lakh crore for the current 2020-21 fiscal, but direct tax revenues will be impacted due to slowdown in economy coupled with impact of COVID-19, it added.
The report also proposed 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 MSMEs, the report 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 ongoing financial year from the current threshold of Rs 1 crore, it said. The report also called for rationalisation of advance tax schedule to mandate a payment of only 25 per cent of total taxes till September 2020 without payment of interest. At present, 45 per cent advance tax is required to be deposited by September 15.
The IRS Association said the CBDT had sought inputs from field formations across the country on economic revival. It sent the report to CBDT “for consideration”, the IRS officers’ body said, adding that it proposes to submit its report to the Finance Minister also. Later, in a tweet, it said the report “does not purport to represent the official views of the entire IRS, or the IT Dept.”
Finance Ministry sources said it is prima facie an act of indiscipline and violation of conduct rules which specifically prohibit officers to go to the media with their personal views on official matters without taking prior permission.
“No permission was sought by the officers before going public with their personal views and suggestions on official matters, which is a violation of extant Conduct Rules. Necessary inquiry is being initiated in this matter,” the official statement by CBDT said.
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