Economy

Finance Ministry Slams IRS Officers' Proposal on Levying a COVID-19 Wealth Tax

The policy paper had also suggested raising income tax rates for those who earn over Rs 1 crore a year to raise resources needed to battle the economic damage done by a national lockdown.

New Delhi: The Narendra Modi government on Sunday evening criticised a policy paper put together by 50 young Indian Revenue Service (IRS) officers that proposed a COVID-19 cess and hiking income tax rates on India’s richest as a way of helping the country recover from the national lockdown.

“It is reiterated that the impugned report does not reflect the official views of CBDT/Ministry of Finance in any manner,” the Income Tax Department said in a statement.

The IRS officers, the statement added, did not seek permission before going public with their “personal views and suggestions”, an act it described as a violation of the conduct rules that most government employees are supposed to follow.

“Necessary inquiry is being initiated in this matter,” the statement added.

The suggestions were part of a policy paper titled “Fiscal Options & Response to Covid-19 Epidemic (FORCE)”, which the IRS Association says was sent to the Central Board of Direct Taxes (CBDT).

The IRS Association, a professional organisation of the service, made the paper public on Twitter on Saturday night.

The short-term measures suggested in the paper included raising income tax rates to 40% for those who earn over Rs 1 crore a year or re-introduction of wealth tax for an income of above Rs 5 crore.

Another option suggested was introducing a one-time COVID-19 cess of 4% on a taxable income of over Rs 10 lakh, which it said could help gather up to Rs 18,000 crore.

“In times like these, the so called “super rich” have a higher obligation towards ensuring the larger public good,” the paper argues.

“The government can…identify 5-10 most crucial projects or schemes entailing significant expenditure, which are likely to have a decisive impact on reviving the economy. The government should commit itself to the fact that the additional revenue raised through taxing the wealthy will only and only be utilised for these 5-10 projects or schemes,” it notes.

The paper also proposes, as a medium-term measure, the re-introduction of an inheritance tax, a levy that was in force in India until 1985.

The suggestions sparked sharp criticism across social media platforms over – the subject of personal income tax in India can be controversial issue – and debate over whether greater taxation would in fact depress consumer demand further and serve as an incentive for more millionaires to leave the country.

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An act of indiscipline?

A separate statement circulated to journalists covering the finance ministry and attributable only to government sources said that the public release of the policy proposal was an “irresponsible act” and “prima facie, an act of indiscipline”.

The statement, which quoted finance ministry sources, say that the concerned IRS officers will be asked to explain their misconduct and that the CBDT chairman has been directed to ask them why they wrote and aired such “ill-conceived” views in public without having any authority to do so.

“People should completely disregard such a report. In fact, the finance ministry is doing its best to provide relief and liquidity to the system and ease the lives of the people,” a source said.

In a tweet put out later on Sunday evening, the IRS Association clarified that the paper had only been forwarded to the CBDT for consideration and that it did not “purport to represent the official views of the entire IRS or the IT Dept”.