The Organisation for Economic Co-operation and Development (‘OECD’) has on 20 March 2020 suggested potential tax policy responses to the COVID-19 pandemic with a view to limit damage to productive potential and protecting the vulnerable.
The outbreak and rapid spread of COVID-19 have brought a sharp decrease in the economic activity of many countries. COVID-19 pandemic is totally different from other traditional business continuity threats and is normally outside the scope of issues typically considered by continuity planners. Plans are usually designed to help companies respond to localized threats that affect infrastructure such as fires, bombs, riots, cyclones, tsunami, earthquakes or hurricanes. Once such event has occurred and is over, recovery may be predicted even though the effects may linger.
In the face of this crisis which has become the present-day greatest threat to business continuity, the other priority of government, in addition to support households, is to improve liquidity for businesses. Those businesses have to keep the productive capacity of economies intact as much as possible.
Bearing this in mind, the OECD has come forward with a range of suggested tax policy and tax administration measures that could be adopted by governments after taking into consideration their own national context. Those suggested measures are as follows:
- Temporarily provide more generous welfare payments and income support, including through benefits provided through the tax system, to individuals and workers, including those that are normally not entitled to such payments.
- Waiving or deferring employer and self-employed social security contributions, as well as payroll related taxes.
- Providing tax concessions for workers in health and other emergency-related sectors.
- Deferring payments of VAT, customs or excise duties for imported items (e.g. food, medicine, capital goods).
- Speeding up refunds of excess input VAT, accompanied by targeted measures to limit fraud risks.
- Simplifying procedures for claiming relief from VAT on bad debts.
- Adjusting the required advance payments of corporation tax on the basis of a revised expected tax liability.
- Deferring or waiving fixed taxes like recurrent business property taxes or business turnover taxes.
- Increasing the generosity of loss carry-forward provisions where businesses could opt to receive a one-off cash payment that equals their accumulated tax losses multiplied by the statutory corporate income tax rate.
- Preparing for recovery including through a careful balance of fiscal stimulus and fiscal consolidation once the pandemic ends.
In the local context, we have seen that the Government of Mauritius has already implemented a few of the above measures such as subsidising the wages of certain employees, abolition of VAT on masks and hand sanitizer, suspension of the Environment Protection Fee up to 31 July 2021 and reduction of Training Levy from 1% to 0.5% for operators in the tourism sector as from 1 April 2020 to 31 July 2020. The other measures like waiving of fixed taxes, cashing in of loss carry forward, tax concessions for workers in emergency related sectors could also be considered by the Government. It is a great opportunity for the Government to take appropriate measures to reduce wastage in the public sector and to consider bold and efficient initiatives in the coming national budget with a view to boost up the economy at both micro and macro levels
However, it is acknowledged that the Government will need the appropriate funding to implement these measures. Resorting to more debt will certainly lead to a worsening of the government budget deficit. The government will be tasked to deliver one of the most important and difficult budgets in recent times against the backdrop of the COVID-19 outbreak. The easiest way for governments to reduce budget deficit is through new taxes. However, history has shown that increased tax rates to increase government revenue is usually counterproductive.
In any case, the aftermath of COVID-19 will be unpreceded and can only be overcome with bold and extraordinary measures.