Govt planning to impose a Covid- 19 cess on high income in Budget 2021
For the past 9-10 months the COVID 19 pandemic has forced India into a lockdown. Most of the countries having small businesses which relied on physical availability of customers had the most hit. Small business revenues have plunged everywhere. The Government revenue has dropped significantly too. The government is considering a COVID cess or surcharge on high income earners to help increase revenue ahead of Budget 2021. A call on the new cess or surcharge is likely to be taken in the coming weeks.
Cess suggested to be collected due to fall in Government Revenue
- This probable cess would be imposed to meet the increased expenditure due to the pandemic and the upcoming vaccination drive.
- States were facing pressure in revenues because of economic slowdown and corporate tax cuts, which meant that the government was restricted to meet its spending needs.
- Goods and services tax (GST) collections also struggled for a good part of 2020, in large part due to the pandemic and lockdown.
- Further, India’s growth rate is expected to contract by up to 7.7% while fiscal deficit is projected to rise.
- India has already crossed 135% of its fiscal deficit targets for FY21 in December.
Cess suggested to be collected due to rise in expenditure of COVID-19 vaccination
- The government on January 9 said that it will launch the nationwide COVID-19 inoculation drive on January 16 and priority will be given to nearly three crore healthcare and frontline workers.
- As per initial estimates, the coronavirus vaccine rollout may cost between Rs 60,000 and Rs 65,000 crore.
- The first phase of the COVID-19 vaccination drive that begins from January 16 will cost the government Rs 21,000 to Rs 27,000 crore.
- The second phase is expected to cost an additional Rs 35,000 to Rs 45,000 crore. The government intends to vaccinate 30 crore people in the first phase and an additional 50 crore people in the second phase.
- While the cost of vaccines will be borne by the central government, the state governments will bear distribution, personnel training and logistic costs.
- COVID-19 cess will allow the government to quickly generate funds as opposed to raising taxes.
- Additionally, the government will not have to share it with states as central cess collections belong to the Centre
- Jharkhand has imposed a COVID cess on minerals and Punjab, Haryana and Delhi have imposed additional taxes on liquor to meet the increased expenditure and reduced revenues.
Who will the cess be imposed on?
- The preliminary discussions have revolved around a cess on high-income earners along with some increase in indirect taxes.
- The Centre may also add a cess to excise on petroleum and diesel on top of customs duties.
- There has also been a proposal to add a cess to excise on petrol and diesel on top of custom duties. A cess is a good way for the centre to raise funds as central cess collections are not shared with the states.
- The industry in its recommendations on the budget has asked that no new taxes should be levied as the economy is already under stress due to the pandemic. Experts too agree that the timing is not right.
- The Indian Revenue Service Association (IRSA) had last year suggested the imposition of a one-time COVID relief cess on the super-rich to raise funds amid the pandemic.
A call on the new COVID cess will likely be taken closer to February 1, when the budget is scheduled to be announced. If the government implements the COVID cess, it will be the latest in line of measures to boost revenue at a time when it has implemented several policies that either reduce government collections or increase its spending’s.