Pandemic triggers Covid cess hope for fund starved govt

New Delhi, Jan 22 : Be ready to pay additional taxes this year as the fund starved government explores the levy of a new coronavirus cess or surcharge to mobilise resources required to finance the worlds largest anti-Covid vaccination drive launched in the country on January 16.

Sources in the know of the developments said that preliminary discussions on the new revenue mobilising measure have been held, but a final call may only be taken later this month.

If the plan on new the cess gets a go ahead, sources said, it may form part of the budget proposals for FY22 to be announced by Finance Minister Nirmala Sitharaman on February 1.

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The plan is also for a Rs 1 per litre Covid cess levy on petrol and diesel. But this would have to be weighed against the current retail prices of the two products that have already breached lifetime high levels across the country.

Currently, health and education cess is levied at the rate of 4 per cent on the amount of income tax plus surcharge. This charge is applicable both on individual income tax and corpoarate tax. If the proposal on Covid cess is implemented, this category of taxpayers would have to forgo additional taxes on their income in the coming financial year.

Sources said the proposal on coronavirus cess or surcharge has gained ground over the ability of this additional tax to mobilise additional revenue for the government. In the current financial year (2020-21), the government has budgeted Rs 26,192.31 crore collections from health and education cess.

If the coronavirus cess is levied at the same or higher rate and in similar form, the Centre could easily mobilise in excess of Rs 30,000 crore. The revenue mobilisation may be a bit lower if the new cess is considered only for high income earners (those earning over Rs 1 crore), a proposal that has earlier been discussed at the official level.

Income above Rs 50 lakh is already charged with a surcharge rate between 15 per cent and 37 per cent. The total tax liability for a person earning over Rs 5 crore is currently around 41.7 per cent, including the 4 per cent education cess. This would go up over 44 per cent if the coronavirus cess is imposed.

In addition to the new cess, sources said that another proposal to add another layer of Re 1 per litre cess on auto fuels would give the government another Rs 20,000 crore gain in a year. But the cess plan on petrol and diesel could make the price of the auto fuels even more expensive.

The prices of the two products are already at a new lifetime high levels, pinching the pockets of the common people. Sources, however, said that this levy may be absorbed by the PSU oil companies, preventing any revision in their retail rates.

Excise duty on petrol and diesel has already been elevated amid the pandemic, drawing sharp criticism from several quarters. The total excise duty collection during April-November FY21 has surged nearly 48 per cent to over Rs 1.96 lakh crore, compared to the same period of last fiscal.


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