Taxing times: Govt can increase tax rates or introduce Covid cess for high-income earners

By Amarpal S Chadha

Employers and employees need to be aware of the compliance requirements, unintended violations/risks they may trigger from a tax, social security, immigration and employment law perspective, thanks to the unprecedented impact of the Covid-19 pandemic. Governments across the world have taken cognisance of the involuntary over-stays by individuals and the resultant exposures. Some countries like the US, the UK, Ireland, etc, have relaxed the guidelines to exclude the stay of individuals due to the pandemic while determining their residential status. In India, the CBDT announced a relaxation in determination of the residential status of individuals who came to India on a visit prior to March 22, 2020, wherein it said that presence in India during the specified period would not be considered for determining residential status for FY20.

The government has actively taken steps to protect the economy, and tax has played a significant part. The “Atmanirbhar Bharat” stimulus package was announced to provide relief to various sectors and drive India towards self-reliance. Some of the measures were extension in timelines for filing tax returns, reduction in specified withholding tax rates, etc. In an attempt to boost expenditure the LTC Cash Voucher Scheme was introduced. While the country is looking to sustain economic activity, ultimately, the debts and associated deficits will force the Centre to come up with revenue-raising policies.

The World Bank publication, Taxes & Government Revenue, states, “Taxes have a key role to play in making growth sustainable and equitable, especially in the context of the Covid-19 crisis”. It also states, “Collecting taxes and fees is a fundamental way for countries to generate public revenues… to finance investments in human capital, infrastructure…”. Hence, a strong growth-supporting policy framework is required.

Countries like the UK and Australia have introduced specific deductions for additional costs incurred while working from home. The Australian federal budget for 2020 has also provided tax breaks for those with income below a certain threshold. It will be interesting to see what changes the Indian government brings in the tax and economic policies. The changes that the government could bring include increase in tax rates/introduction of a Covid cess for high-income earners; increase in tax rates on long-term capital gains on the sale of property for owners of more than two houses; clarity on the determination of tax residential status for FY21 for individuals stuck in India due to Covid-19; regulatory amendments for the adoption of new LTC scheme; amplification of tax laws and ease of compliance for individuals by encouraging digitisation.

The pandemic and its impact notwithstanding, the government has been going ahead with its agenda to implement four new labour codes. These codes, proposed to be effective from April 1, are expected to bring in simplicity, efficiency, ease of compliance and equity for all. The government will have to strike a balance keeping in view the need to strengthen the country’s economic condition as well as the harsh realities at ground level, due to the pandemic. One has to wait and watch what the new year will bring in!

With contributions from Ammu Sadanandhan, senior tax professional, EY India

The author is Partner, People Advisory Services, EY India. Views are personal