What is FORCE?
On April 25 a list of ideas were presented by 50 IRS (Indian Revenue Services) officers or the “Task Force”.
These recommendations were presented with a view to revive the economy after COVID-19 and recorded in a 44-page document titled ‘FORCE’ or ‘Fiscal Options & Response to Covid Epidemic’. The document was presented to the Prime Minister’s Office (PMO), Union Finance Ministry and the Central Board of Direct Taxes (CBDT). The paper delves into several steps the officers think are needed to revive the economy. It also talks about raising additional revenue without burdening the common man.
“The government needs to spend considerably more to revive the economy and it needs to raise additional revenue, but in ways that must not burden the already distressed common man,” the paper says. “In times like these, the so-called ‘super-rich’ have a higher obligation towards ensuring the larger public good.”
A lot of radical ideas of the 1970s are lurking in the air…
Tax the rich!
“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 or schemes (mentioned in the paper),” the paper argued.
The paper recommends raising the income tax slab rate to 40 percent for taxpayers having income above INR 1 crore. It also emphasizes the re-introduction of wealth tax for those with a net worth of INR 5 crore or above.
An additional one-time cess of 4 percent should be levied on those with a taxable income of more than INR 10 lakh. The “Task Force” estimated that an extra revenue of INR 15,000 crore to INR 18,000 crore could be generated using this.
Mobilisation of CSR funds for COVID-19 relief by extending tax incentives was also emphasized. Corporates should be allowed to treat the salaries paid to their non-managerial staff as a part of their obligation under CSR. This is an effort to guarantee continued wages during non-working days during this crisis.
The paper also suggests a new tax-saving scheme, a Covid-19 savings certificate, in order to mobilize funds.
Increase ‘equalization levy’ for E-Commerce firms…
The coronavirus economy has proved to be largely a digital/online/e-commerce one. India can tap the more profitable economies by imposing higher tax rates on companies such as Netflix, Amazon Prime, Google and many more. The equalisation levy can be increased from 2 percent to 3 percent for major e-commerce companies.
On March 23, India had taken a tough call of increasing the equalization levy to 2 percent. This had received enough push back and deferment from major tech heavyweights like Google and Facebook.
Benefits for poor…
The paper also suggests DBT or Direct benefit Transfer to the poor. It states, on the expenditure front, a direct cash transfer to the 12 crore most economically disadvantaged households. The transfer should range between INR 3,000 to INR 5,000 for a period of 6 months.
If envisioned and implemented in a targeted fashion, the scheme holds tremendous promise and achieves ‘three-prized’ objectives – provision of income, support to the unemployed, creation of public infrastructure and investment in human capital.
Healthcare sector to drive the economy…
The healthcare sector has an immense scope of growth owing to the present circumstances. The sector must incorporate the manufacturing of pharmaceuticals, medical grade masks, vests, gowns. The focus should be on the building of testing labs, ventilators, hospitals and primary health centres.
On a taxation point of view, a complete tax holiday or tax break to be proposed for the next 3 years for all corporate, businesses and firms operating in healthcare sectors.
Steps to boost ‘consumption’
The Task Force has incorporated a list of recommendations to increase the disposable income and boost the consumption.
- Allowing the short-term capital loss suffered by retail investors to be set off from their salary. Hence saving them from any tax liability on the money lost. These losses are majorly suffered due to the recent stock market slump.
- Any allowances or bonuses given to employees with an annual pay of less than INR 10 lakh should not be taxable.
- Allow the deferral of tax payment by individuals who have lost their jobs for 6 months or more or until they find a new job.
- Provide increased deduction on interests over the purchase of houses, automobiles, and other electronic items which are ‘made in India’.
- Inclusion of a tax moratorium for MSMEs. This sector is bound to be the worst-hit by the crisis and it has a tax liability of INR 5 to 10 crore for one year.
Radical ideas of 1970
The document proposes the opposite of what might be needed. With the rise in extreme circumstances, radical steps in taxation have found its way in India.
Suggestions in the document are similar to the policies of the 1970s. These are 1974 ideas returning in 2020. The document is suggesting a 55 percent tax (including cess) on people earning over INR 1 crore. This draconian tax rate was removed during the economic reforms of 1991. It suggests an additional tax for MNCs, a surcharge on inheritance by overseas Indians and additional tax on gig money.
The liquidity in the hands of individuals is decreasing by the day. There has been a sharp decline in consumption and the revenue generated by the government might not cater to the needs of a country with a population of nearly 1.4 billion.
Around the world, Governments have been implementing tax incentive policies, tax breaks and tax holidays. Efforts are being for more liberal tax policies. India should aim at implementing a more predictable tax-regime.
The Spurn
The CBDT had rejected the report calling it “a violation of extant Conduct Rules.”
“There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation. It is unequivocally stated that CBDT never asked the IRS Association or these officers to prepare such a report,” the Income Tax Department said on Twitter. The CBDT also stated that no permission was given to the officers before going public with their personal views and suggestions.
The department further said “It is reiterated that the impugned report does not reflect the official views of CBDT/Ministry of Finance in any manner.”
(1/3)There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation.
— Income Tax India (@IncomeTaxIndia) April 26, 2020
It is unequivocally stated that CBDT never asked IRS Association or these officers to prepare such a report.@nsitharamanoffc @Anurag_Office
(2/3)No permission was sought by the officers before going public with their personal views & suggestions, which is a violation of extant Conduct Rules. Necessary inquiry is being initiated in this matter.@nsitharamanoffc @Anurag_Office
— Income Tax India (@IncomeTaxIndia) April 26, 2020
(3/3)It is reiterated that the impugned report does not reflect the official views of CBDT/MInistry of Finance in any manner.@nsitharamanoffc @Anurag_Office
— Income Tax India (@IncomeTaxIndia) April 26, 2020
“There is some report circulating on social media regarding suggestions by a few IRS officers on tackling Covid-19 situation. It is unequivocally stated that CBDT never asked the IRS Association or these officers to prepare such a report,” the Income Tax Department said on Twitter. The CBDT also stated that no permission was given to the officers before going public with their personal views and suggestions.
The department further said “It is reiterated that the impugned report does not reflect the official views of CBDT/Ministry of Finance in any manner.”