Source: Organisation for Economic Co-operation and Development
The OECD issued a report concerning tax and fiscal policy responses to the
coronavirus (COVID-19) pandemic.
The report shows that while many governments have taken rapid, extensive, and often
unprecedented action, getting the support to “the most vulnerable households and
firms” still poses significant challenges.
Developing countries will need specific support—notably significant financial
support—for helping health and fiscal systems withstand the current shocks.
Maintaining business cash-flow has been a core goal of the fiscal policy
measures. Measures include extending deadlines for tax filing, deferral of tax
payments, faster tax refunds, more generous loss offset provisions, and some
tax exemptions.
Governments have also helped businesses retain their workers through short-
time work schemes or wage subsidies, and have extended income support to
households, eased access to and expanded eligibility for sick-leave benefits,
and sometimes broadened the coverage of unemployment benefits to self-
employed workers.
On May 4, 2020, the OECD held a webcast on which it noted that with global economic
activity facing a historic drop and government spending rising dramatically, the
implications of the Covid-19 crisis on public finances and tax revenues are significant.
Drawing on its multi-disciplinary expertise, the OECD is deploying its data gathering and
analytical capacities to help governments face these unprecedented challenges while
supporting businesses and people towards economic recovery. The OECD specifically
noted that:
Governments are taking multifaceted actions to support their citizens and
businesses and to maintain the provision of vital public services, often putting
new and unforeseen pressure on public finances.
The OECD is providing critical advice on a range of tax topics while using its
large tax co-operation network to facilitate collaboration among all countries.
A recent report examined emergency tax and fiscal policy measures introduced
by countries in response to the COVID-19 crisis, and noted that tax and fiscal
policy responses “are playing a key role in limiting the hardship caused by
containment measures, and should continue to do so as governments seek to
pursue economic recovery from the global pandemic.”
Among the tax relief items are measures being taken to ease the burdens on
taxpayers and to support businesses and individuals with cash flow problems,
with difficulties in meeting tax reporting or payment obligations or otherwise
facing hardship.
The strict quarantine requirements have led to new concerns over tax treatment
of cross-border workers, many of whom are stranded in a country that is not
their country of residence or unable to physically perform their duties in their
country of employment. This situation has an impact on the right to tax between
countries, which is currently governed by international tax treaty rules that
delineate taxing rights. The OECD has issued guidance on these issues per
member countries’ request.
The economic changes associated with Covid-19 will also affect tax types in
different ways, even before taking into account the measures to mitigate the
consequences of the crisis. Corporate income tax (CIT) revenues, which are typically
most responsive to economic cycles, are likely to decrease by more than the fall in
economic activity. A reduction in employment and in wages will likely translate into
lower personal income tax (PIT) revenues and social security contributions. Revenues
from consumption taxes, especially from valued-added taxes (VAT), are also likely to
fall due to the impact of lockdowns and lower consumer confidence, as well as a
potential shift towards the consumption of staple goods, which are often taxed at
reduced or zero rates. The structure of tax revenues in Asian and Pacific economies
may render them more vulnerable due to their high reliance on CIT, that accounted for
19.0% of total tax revenues in 2017 in the countries included in this publication, on
average, compared to 9.3% for OECD countries (OECD, 2020).
Sources:
Asia Development Blog
Asian Development Bank Research
Tax administrations across the globe have played a critical role in supporting
citizens and the economy at a time of crisis, including by helping to mitigate cash flow
difficulties and minimise compliance burdens and, in many cases, by working with other
parts of government in providing assistance to businesses and citizens, including
through grants or loans (Suzuki, 2020).
Slower economic growth during COVID-19 will have a significant impact on tax
policy across the region. Countries in Asia and the Pacific can take specific steps that
will benefit their economies both during the pandemic and over the longer term.
Throughout the region, countries must optimise tax policy to take into account shrinking
economic growth during the pandemic and increased economic activity in the years that
follow.
During the pandemic, tax agencies have focused on maintaining the operation of
essential business processes, including taxpayer registration, taxpayer services, tax
return and payment processing. The need to ensure the safety of staff to be deployed in
the core business processes is an important part of this response, including strict
compliance with policies on health and hygiene. Data and cyber security are also of
critical importance.
According to Asian Development Bank, The global economic impact of the
pandemic could expand the informal economy, particularly among small businesses. It
may also have a negative impact on tax compliance. These changes could trigger
increases in value-added tax fraud or missing trader fraud, to which tax agencies need
to be alert. Tax administrators should seek to strike the right balance between service
demands and tax compliance.
