Wealth tax warning: IMF proposes 'solidarity tax' for Covid debt – will you be affected?

Wealth taxes are often controversial in nature and when they’re brought up or proposed it stirs extreme debate on both sides of the argument. Despite this, over the last year or so the topic of new taxes has repeatedly emerged as Governments and public institutions pondered how they’d be able to cover ballooning coronavirus debts.

Among the more recent ideas concerns a “solidarity tax” which was proposed by the IMF yesterday.

During their most recent fiscal monitor, the IMF proposed high earners and companies that “prospered” during the pandemic should pay additional tax to “show consolidarity” with those still struggling with the economic costs of coronavirus.

The IMF detailed this would be a temporary tax that would help to reduce social inequalities that have been exacerbated by global lockdowns.

In speaking with the Financial Times, Vitor Gaspar, the IMF’s head of fiscal affairs, detailed a symbolic rise in taxation from those who have done well over the past year would “strengthen social cohesion” even where public finances are in a relatively healthy position.

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Adam Dunnett, a Director at ZEDRA, commented on the proposals: “A short term solidarity tax is a bold idea and in many ways the spirit of the IMF’s statement, the intentions and motivations behind it are hard to fault.

“The difficulty comes in the details. Who would be asked to pay the tax and on what amount?

“The main target for this sort of taxation is, of course, the US based ‘FAANG’ companies who are already being targeted outside the US through various digital service tax proposals and laws.

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“A solidarity tax charge on those businesses would probably be popular globally but faces two obstacles; the US administration is likely to have objections and will repeat some of the arguments it has used in response to digital services taxation.

“The second obstacle is a practical one – taxes on these types of popular consumer businesses are often passed on to the customer pretty quickly.

“There is a chance that a one time tax charge on these sorts of businesses could end up being paid by the people it is intended to benefit.

“A solidarity tax applied to a broader number of taxpayers, maybe entire industries or all businesses that experienced profits increases over a certain amount, could be expensive to implement and enforce.

“Investors and businesses crave stability after a bonkers twelve months, and introducing an expected tax charge raises the prospect of more uncertainty, which governments are keen to avoid.”

Rishi Sunak recently addressed public debt problems in his recent Budget and the Chancellor froze a number of taxes, across a range of financial concerns.

During his speech, Rishi commented on the difficult decisions he had to make: “Another alternative would be to try to find all the savings we need from public spending.

“The only other alternative would be to increase the rates of tax on working people – but I don’t believe that would be right either.

“So I believe our approach, while bold, is compatible with our duty as a fiscally responsible and business friendly Government.

“This is the right choice and I’m confident it will command public assent.”

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