Countries around the world are implementing emergency taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. measures to support their debilitated economies under the coronavirus (COVID-19) threat.
Proving tax relief to the people and companies that are most affected, until the emergency abates, is welcome. Countries should consider tax relief measures 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 fiscal relief as a way of minimizing the economic impact from the health crisis.
As policymakers navigate this crisis, they should hue to the following principles:
- Tax relief should be broad-based.
- Tax relief should be in keeping with good long-term policy. Distorting markets today will undermine the long-term recovery.
- Using refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit. s today should be designed to bring forward future credits or deductions.
- Policymakers should also use this opportunity to fix distortive tax policies that could impede recovery efforts.
The following countries implemented or plan to implement tax relief for businesses and households affected by this health crisis:
Austria has reduced income and corporate tax prepayments, deferred tax payments, allowed taxes to be paid in installments, reduced or provided relief from late tax payments, and has suspended tax auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. s.
Canada‘s federal government is deferring tax payments for individuals and businesses. Any income tax amounts owed on or after March 18 and before September 2020 can be deferred until after August 31, 2020. In addition, post-assessment sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. or income tax audits for small and medium businesses will be suspended for the next four weeks. The finance ministry will also provide a temporary wage subsidy to eligible small businesses worth 10 percent of remuneration over three months.
In Chile, the government has introduced a program that defers tax payments for businesses with annual sales of less than $12 million.
China has reduced its value-added tax (VAT)A Value-Added Tax (VAT) is a consumption tax assessed on the value added in each production stage of a good or service. Every business along the value chain receives a tax credit for the VAT already paid. The end consumer does not, making it a tax on final consumption. 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.
Estonia has suspended interest penalties on late corporate tax payments for two months.
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.
Finland is delaying corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. payments.
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. VAT reduction to 6 percent from 24 percent for products related to preventing spread of coronavirus.
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 creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s will be granted to companies that suffer a 25 percent drop in revenues. In addition, businesses receive a 50 percent tax credit for sanitation expenses, such as daily cleaning services, masks, and other precautions that help stop the spread of new coronavirus.
In Iran, employees can defer tax payments for the next three months and the 3 million poorest Iranians will receive an additional cash subsidy. There will be additional tax relief for small to medium-sized enterprises.
Japan has delayed income, consumption, and gift taxA gift tax is a tax on the transfer of property by a living individual, without payment or a valuable exchange in return. The donor, not the recipient of the gift, is typically liable for the tax. filing deadlines and payments by one month, until April. Further measures will be considered depending on how the situation evolves.
Luxembourg is allowing businesses to file requests for cancellation of the first two quarterly tax payments for 2020 (for corporate income and municipal business taxes), and there is a four-month deadline extension (for corporate income, municipal business, and corporate net wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. es) for all payments due after February 29, 2020.
Malaysia is exempting accommodation services from services tax and providing sales tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax. s and lifting import duties on equipment and machinery.
New Zealand has announced the reintroduction of depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. deductions for commercial and industrial buildings to encourage investment. In addition, the threshold for payment of provisional tax will be increased to NZ$5,000 (US$ 2,850) to reduce cash-flow pressure on small firms.
Norway has reduced the employee tax rate by 4 points for two months. Corporations will be allowed to deduct losses in 2020 to reduce tax payments in the two previous years. The reduced VAT rate (12 percent rate) will be temporarily lowered to 8 percent, and this change is retroactive to January 1. Tax payments for VAT and advanced tax payments for other businesses will be postponed. Net wealth tax payments will be reduced for those who own stock in loss-making companies. The tax on air passenger flights is suspended from January 1 to October 31, 2020.
Romania will suspend most tax audits, extend the deadline for an annual profits tax from March 25 to April 25, and speed up VAT refunds to help businesses.
In Slovakia, companies and individuals will receive an automatic deadline extension of up to three months.
South Korea will cut its VAT for small businesses, give tax boosts for consumers replacing their cars early, and provide a new tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions. on personal credit card spending.
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.
Sweden is allowing businesses to reclaim tax payments that were made from January to March.
Thailand‘s cabinet approved cutting the income withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount of the employee requests. 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.
Turkey will give a six-month deferral on some tax and insurance premium payments to certain sectors, including retail and transportation. The VAT on domestic air travel will be cut from 18 percent to 1 percent. Minimum payouts for pensioners will be increased and the government will make an early annual bonus payment to pensioners.
The UK government will waive business property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es for retail, leisure, and tourism for 12 months to reduce the economic impact of the coronavirus. It also paused its plans to expand rules on the employment status of contractors in the private sector. These so-called “off-payroll” rules aim to ensure that contract workers pay about the same tax and social security contributions as regular private sector employees. The UK is also expanding the Universal Credit and working tax credit by £1,000 and delaying £30 billion in VAT payments.
Ukraine will exempt imported medicine and medical devices and equipment needed to prevent the spread of coronavirus from its VAT.
The United States has adopted a short-term expansion of paid sick leave. Tax payments have also been delayed until July 15 without interest or penalties. Total fiscal relief under negotiation could exceed $1 trillion.
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