Tax Measures Target Economic Damage From The Coronavirus Pandemic

At the beginning of March, G-7 leaders said they were monitoring the rapidly unfolding coronavirus situation, ready to act and cooperate as necessary to handle the pandemic that is halting the world. Two weeks later, the G-7’s tone became urgent. Instead of standing by and monitoring, G-7 members said they would do “whatever is necessary” to address the crisis.

Doing “whatever is necessary” is a discussion that is constantly shifting. In the tax realm, it appears the name of the game is liquidity. Helping taxpayers hold onto some amount of cash during this time of economic volatility is imperative and several coronavirus-related measures are geared toward that goal.

Tax Deadlines Deferred or Eliminated

Several governments are allowing individual and corporate taxpayers to defer various kinds of tax payments, but the deferrals vary significantly. Some are lasting one month while others extend up to a year. Some countries are sweetening the pot with interest-free deferrals.

Large businesses in Denmark just received a series of VAT extensions over the next few months. Monthly VAT payments normally due in March, April, and May will automatically receive a 30-day extension. Small and medium-size enterprises are getting an even larger break for their 2020 VAT payments. Small entities that pay VAT biannually will receive a six-month extension. Their first VAT payment, normally due in September, will now be due in March 2021. Medium-size enterprises that pay VAT quarterly will receive a three-month extension. First-quarter VAT amounts will be payable in September instead of June.

Employee withholding tax payment deadlines in April, May, and June are each being extended for four months. This applies to both large businesses and SMEs.

In Australia, tax authorities are willing to defer various tax payments for up to four months, on a case-by-case basis for individual taxpayers. They are also willing to cut interest and penalties on tax liabilities dating back to January 23 for businesses affected by COVID-19 and offer low-interest payment plans to some taxpayers encountering payment difficulties.

Lithuania, which is throwing 10 percent of its GDP behind a coronavirus stimulus package, is dispensing with interest in several cases. Authorities are willing to offer no-interest instalment plans. As part of its €500 million business liquidity package, Lithuania says it will allow business taxpayers to defer tax payments, stop recovery actions if reasonable, and could allow taxpayers to defer their personal income tax payments.

Germany, France, and Spain are all allowing deferments. Spain is letting taxpayers decide whether they want to pay their taxes over six months via an instalment plan or defer their tax debt interest-free. Indonesia, which is heavily dependent on manufacturing, is largely focusing its tax reliefs on that sector. Manufacturing employees in Indonesia earning under IDR 200 million (about $13,000) are entitled to a six-month income tax payment freeze.

As compared with other countries, Canada has not been as quick to take decisive action, but on March 18 the Canadian government released a long-awaited stimulus package. As part of that plan, the Canada Revenue Agency is pushing back the personal income tax filing deadline one month to June 1.

In the United States, the government has extended individual and corporate tax payment deadlines for 90 days, subject to certain thresholds.

Hospitality Industry

In the United Kingdom, the nation’s hospitality industry is reeling from a 70 percent decline in foot traffic because of the pandemic and is deeply worried that it may not survive the crisis unless the government steps in with a supercharged tax relief package and cash. The industry has felt betrayed by Prime Minister Boris Johnson, who urged citizens to stay away from social venues like theatres, pubs, and clubs.

CEOs from 200 of the United Kingdom’s largest hospitality, entertainment, and food service companies demanded that the government step up and give the entire hospitality sector a six-month holiday from business rates (which are taxes on most non-domestic properties), and provide rent relief and cash infusions, according to the Financial Times. Otherwise, the country risks an economic downturn because the hospitality sector employs 10 percent of U.K. workers, according to a letter sent by the executives to Johnson.

When the U.K. government released its Budget 2020 on March 11, COVID-19 numbers in the United Kingdom were just beginning to climb. Johnson was reticent to impose social distancing, under the belief that the country’s virus peak was weeks away. Armed with that information, the government announced ￡12 billion in coronavirus-related health and economic relief, including billions of dollars in grants for small businesses, a business rates exemption for small retail, hospitality, and leisure companies, and an SME loan program. But the announcement fell flat. In the letter to Johnson, the hospitality execs said the government’s business rate holiday only helped 30 percent of the industry, which is on the brink of experiencing a “fatal cash flow catastrophe.”

Meanwhile the health situation on the ground deteriorated quickly. Within a week it became clear that a much stronger intervention was necessary, especially for the hospitality sector. In response, Chancellor of the Exchequer Rishi Sunak announced on March 17 a ￡330 billion coronavirus business rescue package that provides some of the most aggressive relief in all of Europe.

Key to that package, all U.K.-based retail, leisure, and hospitality companies are exempt from paying business rates for 12 months. It applies to all shops, restaurants, pubs, theaters, and music venues across the country, Sunak noted. Smaller businesses with a ratable value less than ￡51,000 will also be eligible for a cash grant.

“If demand is greater than the initial ￡330 billion I’m making available today, I will go further and provide as much capacity as required,” Sunak said. “I said whatever it takes and I meant it.”

Across the world in Indonesia, Bali and the country’s other tourist hot spots have been hit hard by the outbreak. Indonesia is trying to lessen the blow by eliminating hotel and restaurant taxes in 10 popular regions for six months, under the country’s first coronavirus stimulus package. Restaurants and hotels pay these taxes to their local governments, and the national government is going to step in and reimburse local economies for the lost tax revenue. The country is also making it less costly for airlines to fly to the affected destinations by reducing airport fees by 20 percent, according to a local report.

Similarly, Russia is giving its tourism industry a much-needed cushion by deferring taxes for tourism and airline companies.

Liquidity Provisions

Governments are racing to ensure that businesses have adequate cash on hand to endure an impending economic slump and are approaching the problem from different angles.

Australia is addressing cash concerns by helping business taxpayers access their goods and services tax refunds faster than usual. Specifically, taxpayers that normally report and pay their GST quarterly can switch to a monthly schedule and obtain refunds, if any, accordingly. But Australia only allows changes at the top of each quarter, so taxpayers must log their change before the start of the next quarter on April 1.

Indonesia is adopting a similar approach for its manufacturing taxpayers and plans to issue faster VAT refunds as part of its coronavirus stimulus package, according to Reuters. VAT refunds will be expedited in Thailand as well. China is outright waiving VAT for taxpayers in the transportation and other crucial sectors.

The Australian government is also giving SME employers a one-time, tax-free payment of between AUD 2,000 (about $1,200) and AUD 25,000. In the United Kingdom, Sunak is giving businesses a ￡10,000 cash grant, which is substantially higher than originally planned. The government had intended to issue ￡3,000 grants but quickly pivoted as the crisis became more severe. By comparison, France is offering a €1,500 grant for small and micro businesses and the self-employed. Lithuania says it will allow immediate tax loans.

The EU is planning to deploy a state aid temporary framework based on article 107(3)(b) of the Treaty on the Functioning of the European Union so member states can provide tax advantages, grants, and other coronavirus relief without running afoul of EU state aid laws. The bloc last erected a temporary framework during the 2008 financial crisis, and it took three weeks. This time, the EU is looking to complete the task within a matter of days. If all goes according to plan, member states will be able to issue up to €500,000 in tax advantages or direct grants to any company.

Germany says it is devoting unlimited funds to keep businesses solvent via state development bank KfW. Unlike some of its counterparts, however, the country is concentrating that relief in the form of loans instead of grants.

Denmark is planning to exponentially increase the allowable balance on business tax accounts from DKK 200,000 (about $29,000) to DKK 10 million so companies can park their tax payments there undisturbed until payment and avoid negative interest charges. This provision would expire at the end of November.

Meanwhile, Canada is allowing for a massive C $55 billion in tax deferrals for business and individual taxpayers.

While many relief measures are forward facing, Sweden is looking to impose its relief retroactively. The country intends to boost liquidity by allowing companies to defer VAT payments, employer social security contributions, and preliminary tax on salaries. The country’s company payment respite scheme, which grants more time to make tax payments, is normally capped at two months but is now being extended up to 12 months.

Corporate and Business Tax Adjustments

At the beginning of the year, the airline industry battled against a rising clamour for aviation taxes. Now, in the face of the coronavirus, those discussions have shifted from taxes to bailouts. For its part, Norway is planning to suspend an air passenger tax for all flights between January 1 and October 31. Aviation charge payments are suspended until June 31.

The country is planning to allow loss-making corporations to shift those losses to prior surplus years and is also allowing them to postpone wealth tax payments. Similarly, China is allowing companies to carry over 2020 losses for up to eight years.

In Denmark, business taxpayers that experience a shortfall in revenue this year can request a reduction of their corporate income tax liabilities. Indonesia is granting companies a six-month corporate tax deferment period under its stimulus package.

Lithuania is encouraging municipalities to exempt businesses from commercial real estate and land taxes but is not mandating that relief. Thailand is halving business withholding tax rates and the going rate will be 1.5 percent for payments between April 1 and September 30.

Italy, which has become ground zero for European COVID-19 cases, said it would offer tax credits for companies that have seen their revenues drop by at least 25 percent, according to the Financial Times.

Special Government Units

In some cases, dedicated units are slowly cropping up to handle coronavirus-related tax issues. Australia is tackling the crisis by establishing a special clearinghouse within the Treasury to address business taxpayer concerns. The Coronavirus Business Liaison Unit went live on March 16 and will be reaching out to various business groups, according to the government.

It’s also taking relief to the streets. As part of the government’s stimulus package, the Australian Taxation Office will create a temporary shop front to assist small businesses in the Cairns region, a popular coastal destination that is reeling from a sharp decline in tourism.

HM Revenue & Customs has a dedicated coronavirus phone hotline for self-employed taxpayers and businesses to request various forms of amnesty. Depending on the case, HMRC is open to cancelling penalties and interest, implementing instalment agreements, or even suspending debt collection proceedings, according to the government. It’s a hefty undertaking for HMRC, which has received considerable backlash over the past few years for its understaffed hotlines. However, the department is throwing considerable muscle into this helpline, which will be staffed by 2,000 agents.

Write-Offs and Deductions

It’s a tenuous time for businesses to purchase assets, but the Australian government is offering two unprecedented incentives in its stimulus package to make it worthwhile. First, the ATO is increasing the country’s instant asset write-off from AUD 30,000 to AUD 150,000. The measure, which normally applies to companies with less than AUD 50 million in turnover, now applies to a much broader swath of taxpayers, and covers businesses logging up to AUD 500 million in turnover. However, taxpayers must act fast to get the relief — it only applies to assets that are first used or installed between March 12 and June 30.

The second relief gives taxpayers a souped-up 50 percent depreciation deduction for new assets, and the relief period lasts considerably longer at 15 months (through June 2021).

In Thailand, SMEs can deduct 300 percent of certain employee expenses during a four-month window from April to July.

Tech Upgrades

Not much has been divulged about how tax authorities intend to use technology to assist in these massive undertakings. Notably, Indonesia is using the opportunity to boost its tech. The country has been planning for years to integrate its online tax payment portal, the Indonesia National Single Window, with a separate portal that handles trade permit processing and licensing, Inaportnet. The coronavirus outbreak is expediting that process, and the two will merge into what will become the National Logistics Ecosystem, according to a local report.

Mental Health

In the midst of this situation, at least one government is considering taxpayers’ mental health needs. The ATO, which has folded mental health resources into its coronavirus guidance, is encouraging taxpayers to come forward as soon as they believe they will encounter tax difficulties. The agency is emphasizing that they will work with taxpayers on their unique situations.