This article is part of a series in which OECD experts and thought leaders – from around the world and all parts of society – address the COVID-19 crisis, discussing and developing solutions now and for the future.
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The number of COVID-19 cases is quickly rising around the world, with major adverse effects on health and mortality. To fight the outbreak and the spread of the virus, countries are imposing unprecedented measures, such as restrictions on the free movement of people and goods, and are shutting down large parts of the economy. The result is that economic activity has fallen sharply in many countries and increased global uncertainty has further eroded confidence.
Apart from responding to the escalating health emergency, the immediate economic priority for policymakers is to respond quickly to provide support to households and to improve cash-flow for businesses: we need to keep capacities of production and distribution intact throughout this crisis. The goal is to ensure that households and businesses are able to keep their heads above water until the health crisis can be contained, so that the economy is ready to rebound once the worst of the pandemic has passed.
While the OECD will keep working on long-term projects like tax co-operation among countries, international standards to eliminate double taxation, and the mobilisation of domestic resources, we have prioritised work on a range of targeted and temporary tax policy and tax administration measures governments could consider as part of their immediate response. We have also compiled all tax measures taken by governments to produce a useful toolkit.
Among the most urgent measures, governments have been considering (and enacting):
- Waiving or deferring employer and self-employed social security contributions, as well as payroll related taxes. Hard-hit sectors and those affected by a shutdown could benefit from the waiver of payroll-related taxes and social security contributions, paid by the employer or the self-employed, to immediately reduce labour costs.
- Providing tax concessions for workers in health and other emergency-related sectors. In order to reward people for working extra hours and in potentially dangerous conditions, governments could provide tax concessions (e.g. exempting overtime income from labour taxation) or could incentivise retired workers to temporarily re-enter the workforce by ensuring that their pension entitlements are not affected.
- Providing additional time for dealing with tax affairs, adjusting tax filing and payment requirements and advance payment schemes, providing quicker refunds to taxpayers, enhancing taxpayer services and implementing clear communication strategies.
- Deferring payments of VAT, customs or excise duties for imported items (e.g. food, medicine, capital goods), avoiding abuse through careful administration.
- 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, including by reducing the minimum period of payment delay that is required for VAT on issued invoices in order to be eligible to obtain relief.
- Deferring or adjusting the required advance payments of business income taxes on the basis of a revised expected tax liability that more closely approximates the taxpayer’s likely final tax liability, taking into account the expected impact on business turnover (instead of using last year’s sales or profits as a proxy).
- Deferring or waiving taxes that are levied on a tax base that does not vary with the immediate economic cycle, e.g. recurrent property taxes or business turnover taxes.
- Increasing the generosity of loss carry-forward provisions. One option is to turn loss-carry forward provisions into a loss-carry backward provision, where businesses could opt to receive a one-off cash payment.
While the immediate focus of these tax measures is on providing income support to households and improving cash-flow for businesses, once containment of the pandemic is within reach, governments will need to re-assess their medium- to longer-term fiscal strategies to achieve a balance between fiscal stimulus and fiscal consolidation, adapting to a new reality that unfortunately is still largely unknown.
If the outbreak is prolonged and the economic impacts are deep, as increasingly appears to be the case in many countries, then policies to keep the economy on standby become more costly and less effective. Today, the focus of policymakers has already begun to shift to the next round of stimulus policies to rebuild confidence and stimulate economic activity.
As we navigate through this global crisis, one of the few certainties is that tax policy will play an important role in the immediate response of governments to support individuals and businesses, as well as in future rounds of policy action, including to rebuild our economies, which will ultimately take place once the health crisis has been contained. The OECD, working with other international organisations, will deploy all its data gathering power and analytical capacities to help governments across the world, and will use its large networks for tax co-operation (the Inclusive Framework on BEPS and the Global Forum with 137 and 161 members, respectively) to facilitate collaboration among all countries.
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