New COVID-19 cess expected in upcoming Budget 2021

A new tax component is on the horizon, with the government looking to make up for the pandemic’s setback on the government treasury.

New COVID-19 cess expected in upcoming Budget 2021

The government had to incur massive expenses in 2020 to tackle COVID-19. These included direct expenses, waivers, and other measures under the economic stimulus packages. To recover the additional expenses, the government is weighing its options and planning to introduce a new COVID-19 cess in the upcoming budget. This is likely to be in the form of a cess or surcharge, and is likely to be applied to the high-income tax bracket. It may also be added to fuel as an additional levy. 

The 2021 Union Budget is of special importance and is widely anticipated by everyone. The economy had to bear the harsh brunt of the pandemic, leaving the government with little choice. With low revenue collection and high expenditures for nearly a year, the budget is expected to at least bring the economy back to the growth trajectory. Apart from the expenses already made by the government, it will likely have to spend between Rs 21,000 and Rs 27,000 crore on the first phase of the COVID-19 vaccine rollout. 

In addition to including the COVID-19 cess as a part of the high-income group tax liability, a few indirect taxes are also being considered. The government is also planning to include a cess on top of existing customs duties, besides adding it as a fuel surcharge. 

Notably, the government has approved the emergency use of the two vaccines manufactured by the Serum Institute of India: Bharat Biotech’s Covaxin and Oxford’s Covishield. Vaccination of healthcare personnel, other frontline workers, and people above the age of 50 is being seen as a priority.

What is a cess?

A cess is a component of tax imposed by the government for specific purposes. It may be imposed for a limited period till the purpose for which it was levied is served. A cess is not a tax on the income or purchase. Instead, it is calculated as a percentage or addition to the tax. Therefore, it is a tax on tax. 

How much has the government spent to tackle COVID and its economic fallout?

By the end of November 2020, the government is estimated to have spent nearly Rs 30 trillion in the shape of the virus relief fund. This amounted to 15% of the country’s GDP. The quantum can be gauged from the fact that the government had originally earmarked the same amount as the total budget spending for the financial year. This disruption saw the Indian GDP slip drastically in 2020. 

What is the industry feedback on a possible additional tax?

Understandably, the industry is not very keen on any additional tax at this point. In its budget recommendation, it has mentioned that no new tax should be levied at this point. The economy, it noted, is already reeling under the stress caused by the pandemic and any new imposition can only exert further pressure. However, the Indian Revenue Service Association had suggested last year that a one-time COVID relief surcharge or cess on the super-rich may be a necessary evil for raising the cash level of the government. 8 Financial lessons the COVID-19 pandemic taught us.


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