IMF: Solidarity Tax on Pandemic Winners

The International Monetary Fund recently announced Solidarity Tax on Pandemic Winners. That is, the companies that prospered during COVID-19 crisis should pay additional tax to show solidarity towards those hit hardest by the pandemic.

About the Solidarity Tax suggested by IMF

• It is a temporary tax.
• It shall be imposed to reduce social inequalities that increased during the recent health crisis.
• The Solidarity Tax was introduced by IMF citing Germany’s Solidarity tax after reunification.

Background

According to IMF, several countries are not facing the crisis in public finances. The advanced economies have borrowed 11.7% of their National income, emerging countries have borrowed 9.8% and low-income countries have borrowed 5.5%. However, it is the low-income countries that are suffering the most even to achieve basic needs. Therefore, it is essential to bring in a mechanism that will help in their upliftment.
The current COVID-19 recovery in uneven unlike to that happened after 2008 financial crisis.

Solidarity Tax in other countries

The solidarity tax was introduced in Germany in 1991 after the East and West Germany were joined together. It was collected for only one year.

Solidarity Tax is levied on wealth in France. It is also known as wealth tax. It is paid by households with a net worth greater than 1.3 million Euros. It was first introduced in 1981 and terminated in 1986. Again, it was reintroduced in 1988.

Recommendations made by IMF

• The countries should invest in the production and distribution of COVID-19 vaccinations.
• According to IMF, this will cost tens of billions of dollars but will boost growth prospects to raise tax revenues in advanced countries by 1 trillion USD by 2025.

What is Solidarity Tax?

Solidarity Tax is a government-imposed tax that is levied to provide funding towards unifying projects. It acts in conjunction with income taxes. The solidarity tax is an additional burden on tax payers including sole proprietors, individuals and corporations.

Month: Current Affairs - April, 2021