What is Solidarity Tax on Pandemic Winners announced by IMF?

The International Monetary Fund (IMF) has announced a Solidarity Tax on Pandemic Winners. According to IMF, this tax means that the businesses and high earners that prospered during COVID-19 pandemic will be charged additional tax to show solidarity towards those hit hardest by the COVID-19 crisis.

IMF has also cited an increase in inequality during the COVID crisis where poor and young people suffered the most. The low wage workers, daily wage workers and freshers were among the people who lost have their jobs or had the maximum risk of losing their income source.

What is Solidarity Tax?

As stated by investopedia, a solidarity tax is a government-imposed tax, which is levied in an attempt to provide funding for theoretically unifying (or solidifying) projects. The tax acts in conjunction with income taxes and places an additional burden on taxpayers, including individuals, sole proprietors, and corporations.

Key Points Related to Solidarity Tax announced by the IMF

• Solidarity Tax is a temporary tax.
• The sole purpose of imposing the tax is to decrease the social inequalities within a nation which increased due to the pandemic.
• The tag was announced by IMF citing Solidarity tax of Germany after reunification.

Solidarity Tax in Other Countries

France

• In France, a solidarity tax is called solidarity tax on fortunes (Impôt de solidarité sur la fortune (ISF) ) or wealth tax. This tax is paid by an approx. 350,000 households that have net worth over €1.3 million.
• The tax was first imposed in the year 1981 as Impôt sur les Grandes Fortunes (IGF), which was terminated in 1986.
• The wealth tax was re-introduced as ISF in the year 1988. For tax purpose, the residents of France are subject to the wealth tax, which is levied their assets both local and global.
• The solidarity tax on wealth was abolished by the French government in the year 2017 by replacing it with a solidarity tax on property which came into effect from January 1, 2018.

Germany

• Germany is the most notable country where solidarity tax was imposed, with the aim to help rebuild eastern Germany.
• In the year 1991, the solidarity tax was introduced by Germany with a flat rate of 7.5% on all personal income. The tax was imposed after the East and West Germany were joined together.
• The sole purpose of the tax to provide finance for the newly integrated administration.
• The tax was imposed for a period of one year. However it was re-introduced to fund East Germany’s economic development.
• Later in the year 1998, the flat rate was decreased from 7.5% to 5.5%.
• However the solidarity tax is a short term tax or a supplementary tax above the regular income tax, but German solidarity tax was turned out to be a long-term program. This has also been under scrutiny for being unconstitutional.

The Bottom Line

IMF has recommended the countries to invest in the production and distribution of COVID-19 vaccinations. IMF has also stated that this solidarity tax will cost tens of billions of dollars but in turn it will bring a big boost growth prospects to raise tax revenues in advanced countries by 1 trillion USD by 2025.