Fiscal Measures during the Coronavirus Outbreak
By Cristina Enache
Countries around the world are implementing emergency tax measures to support their debilitated economies under the coronavirus (COVID-19) threat. The following countries implemented or plan to implement tax relief for businesses and households affected by this health crisis:
China has reduced its value-added tax (VAT) from 3 percent to 1 percent for the cash accounting scheme for small businesses until the end of May. It also cut VAT on medical, catering, accommodation, hairdressing, and laundry services as well as on masks and protective clothing.
Denmark announced three tax measures to boost business liquidity. Large companies will have 30 additional days to pay VAT, while all companies will be granted four additional months to pay their labor contributions. The government is also lifting the ceiling on businesses’ tax accounts so that corporations won’t have to pay negative interest rates when placing cash in the bank.
In France, the government is allowing companies to suspend payments of some social charges and taxes and is activating state-subsidized short-time work schemes.
Germany will make it easier for companies to claim subsidies to support workers on reduced working hours to counter the effects of the pandemic. This is the same measure which was used to help prevent large-scale layoffs during the 2008 financial crisis. The government has also discussed having a reform to the solidarity tax (a 5.5 percent surcharge on high-income earners) apply in 2020 rather than in 2021 as previously planned.
Greece will suspend VAT payments due at the end of March for four months and companies’ social security contributions will be suspended until June 30.
Indonesia plans to waive income tax for individuals for six months as it seeks to boost purchasing power. A second stimulus package will allow firms to delay payments of corporate and income tax on the sale of imported goods. These measures will be effective from April 1st and last for six months.
Also, to encourage tourism to certain destinations, a 10 percent hotel and restaurant local tax will be lifted for six months, with the central government compensating local governments for the expense.
In Italy, tax deadlines have been extended for residents and companies in the so-called “red areas” of Italy. Also, all tax payments due in the period between February 23 and April 30 were extended until May 31, and tax credits will be granted to companies that suffer a 25 percent drop in revenues.
Japan has delayed income, consumption, and gift tax filing deadlines and payments by one month, until April. Further measures will be considered depending on how the situation evolves.
Spain approved tax relief for small and medium businesses and self-employed persons. Those businesses will be able to defer their tax obligations for six months without interest. The taxes included in this measure are income, corporate, and VAT.
Thailand‘s cabinet approved cutting the income withholding tax from 3 percent to 1.5 percent for six months, from April to September. It also doubled the tax benefit for investment in long-term mutual funds to USD $12,570.
The UK government announced reductions for business property taxes for retail, leisure, and tourism to reduce the economic impact of the coronavirus.
The United States will likely propose a payroll tax cut and a short-term expansion of paid sick leave. The proposal might also delay tax payments without interest or penalties for certain individuals and businesses that are negatively impacted.
Proving targeted and temporary cash-flow relief to the people and companies that are most affected, until the emergency abates, is welcome. Many countries are relying heavily on VAT as a way to ameliorate cash-flow problems. Nevertheless, this won’t help businesses that are small enough to operate below VAT registration thresholds. VAT reductions are also entirely untargeted.
The only reason why countries should consider tax measures is because the health issue is creating a substantial economic shock. Taxes that require regular payments will impact the liquidity of businesses and households. Therefore, governments should consider targeted fiscal relief as a way of minimizing the economic impact from the health crisis.