Economy Revival Through Covid Tax
How to gather resources ?
Like all viruses, the Covid-19 has come to stay with humans and will not go away. We are fighting with the virus through medical treatment and this will be won once the vaccine is brought against it. The peculiar feature of this Covid-19 is it’s extremely high infectivity. This has caused the governments all over the world into quick action mode and many countries have ordered lock-down of all economic activities to contain the spread of infections. There’s one argument that the lock-down only pushes the infection ahead by few weeks and doesn’t make the community immune against such infections. This argument is still not tested. There emerged a trade off between economic activity and threat of infections. The trade-off crystallizes between the presence of disease and absence of livelihood. In both the cases we are going to lose lives. What is most important is the choice of duration and purpose of the lock-down and it’s application to different sectors of economy.
In case of India, this duration and application of lock-down is wisely calculated and chosen. In the trade-off that emerged, we chose NO to presence of disease and got time for preparing our health care systems to deal with the infections in near future.
We had an unprecedented and most severe form of lock-down of economic activity anywhere in the world. That says something about our intentions to save human lives from infections. However, it is equally more important to save human lives from hunger and deprivation. This lock-down has thrown 120 million of migrant labor population out of livelihood. We have 400 million of people who are dependent upon daily wages as sources of their livelihood. We do not possess margin to look away.
We chose economic lock-down against virus and this decision has consequences which are displayed in entire country in the form of loss of livelihoods, unemployment and resulting hunger.
Even if we reopen the economy now, everything cannot obviously be reopened and hence the damage has already been done. The lock-down has played havoc with the cash-flow positions of numerous small and midsized businesses in every sector. We need to repair, revive, and rebuild the economy. Building is not easy. We need to demand more of our political leaders, of our Forbes listers, our entrepreneurs, our investors. We need to demand more of our culture, of our society. And we need to demand more from one another. We are all necessary, and we can all contribute, to building. This building is and must be devoid of ideology and politics and purely must be results oriented. There is no left or right here, but it is correct whichever builds the economy and shows the money.
Lot of people and businesses including some of the venture capital funded billion-dollar startups are asking the Government for financial support. Needless to say, Government will prioritize the bailing out of small and medium businesses who are largest and most important employers for vulnerable population in India. The experts have estimated that the Government may need to raise amount of Rs. 5 to 6 lakhs crores of for reviving the demand in economy and igniting hopes of coming back on track.
The most important question is, Where’s the money?
We have slipped into that economic terrain, where we can not give any reasons but deliver. It’s a ‘do what it takes’ kind of situation. We need Rs. 5 lacs crores and experts are suggesting cutting of various expenditures of by both the Centre as well as States. Hopefully, the Governments will cut wasteful expenditure. However, cutting on capital expenditure earmarked for creating of public good capital assets does not make any economic sense since it creates employment and puts money in the hands of people. Besides that, the government must look for channels to cut revenue expenses. We must think of raising resources with minimum disturbance to the productive cycles in economy and in this process, manufacturing sector must get the well-deserved priority. Here are the few suggestions on raising of revenue.
Super Rich Tax
The poor and marginalized in every country are the worst affected because of economic fallout of lock-downs. Also, it is perceived that
Covid-19 is brought by rich people in India. This may potentially cause a social tension in future and its imperative to avoid any such perception getting stronger. The Super Rich Tax will help to kill that perception by generating goodwill besides raising much needed revenue.
There are 953-dollar billionaires in India as per the Hurun-IIFL List of 2019. The average wealth per person is reported at INR 5728 crores and the average age is 60 years. Therefore, levying 1% wealth tax on their average wealth of past three years will raise INR 50000 crores minimum. This should be a one-time tax and will not likely to disturb the productivity cycle in the economy. There is no doubt that the wealth of the richest people is contributing to economy, but the Government wishing to decide the ways to deploy only 1% of their wealth is not asking too much in these Covid times.
The charitable trusts have done commendable work in building India. And deservedly, they are given tax exemptions. But the Covid-19 has brought a different and challenging situation. However large burden the charitable trusts may be willing to shoulder here; they cannot match the organized and institutional response of the Government. This is a perfect time for them to join to raise resources having enjoyed tax exemptions for quite a long time. The trusts have been given tax preferences on two counts, first they do not pay tax on their income and second their donors get tax deductions. The charitable trusts have applied income of Rs.5.29 lakh crores in F Y 2019 which is generally 85% of their receipts. The tax foregone in the hands of donors for FY 20 was Rs.1073 crores. Thus, if we tax their receipts at rates between 5 to 10% of their average receipts of last three years, this may help to raise more than INR 50000 crores.
Since medical trusts are on the front-line for managing this crisis, they may be exempted from this tax. This also should be a one-time tax and will not likely disturb the productivity cycle in the economy much.
Securities Transactions Tax (STT)
The STT is levied on the transactions of sale and purchase of securities at 0.1% of such transactions in equity and at 0.001% of unit value in case of equity oriented MFs sale besides STT on transactions of futures and options. This is existing since 2004. The target set for STT for FY 2020-21 is at INR 13000 crores.
The brokerage rates have seen a sharp downfall in last few years, and it has benefited the people dealing in transactions on stock markets. If the rate of STT is raised from 0.1% to 0.3 %, the additional collection of INR 25000 crores can be grossed. This will further help in limiting the speculation in markets and protect long term retail investors from uncalled for fluctuations in stock markets.
Excess Profits Tax
Certain businesses like pharmaceuticals, bio-medicals and chemicals and others are slated to benefit from the Covid -19 health crisis. It is true that they are doing this as their duty and not with a pure profit motive. However, the extraordinary business opportunity to them is afforded by the Covid-19 crisis and may result in excessive profits for them owing to the pandemic. The Government is maintaining the stand that nobody should profit from the calamity. In continuation of that, the excess profits of these businesses must be put to good use. In such cases, an Excess Profits Tax computed as per the statutory mechanism may be levied against such businesses.