APRIL 13, 2020

By J B Mohapatra, Pr. CCIT

MANY of the legislative provisions originally enacted or brought in through subsequent amendments are, if their origins are factually traced, will turn out to be republic's responses to small or large emergencies, sometimes local or regional and at other times, global or transnational. So, to counterbalance in an equitable manner the huge tax expenditure claims of large number of reorganisation of business cases through VRS, a mechanism of amortisation of VRS expense via section 35DDA of the Income Tax Act; or to spur promotion of electronics manufacturing in sync with the Cabinet approval to set up Semiconductor Wafer Fabs via an amendment to section 35 AD; or recognising, in the context of mitigating the impact of environmental degradation, relevance of taxability of carbon credits at a concessional rate via section 115BBG, many legislative interventions are direct answers to mitigate hardship, ensure stability and infuse the economic ecosystem with those seeds of hope for future sustenance. It is proven time and again that systems governing our lives and livelihood while being heavily inter twined with one another are invariably woven around policies which are nimble and amenable to emergency responses across all classes of situational exigencies. 

Emergencies of the present kind - covid 19 - is however unprecedented in scale and reach; its closest parallel is said to be the 1918 influenza pandemic "Spanish Flu". Short term economic consequences of the 1918 pandemic were labour shortages, wage increase, and severe strains on social security systems. Long term consequences included lower educational attainment, lower lifetime income and lower socioeconomic status for those sections who bore the full brunt of the pandemic. The base conditions which nurtured the Spanish Flu and helped exacerbate its aftermath were, however, specific to those times - a physically weakened population due to war strains, a lack of transparency in functioning of public institutions and disjointed policy initiatives - and those hold great lessons for us, more so when the world has refined the policy drives for coordinated responses to natural calamities by leveraging its knowledge and technology. 

While realising that the pandemic would be a shock, both to demand and supply, the end point of all efforts should be to ensure that the economic consequences are less contagious than the disease itself, and by minimising the adverse impact on the most vulnerable. There, of course, would be the problems of liquidity, solvency and of deficient demand and supply. Monetary measures would help address issues of liquidity but solvency problems need both monetary and fiscal measures in order to ensure that one avoids a deep and sustained depression. Targeted fiscal stimulus through grants, loans and subsidies for those sectors facing the greatest stress at the immediate stage and later, a long term infrastructure investment plan would be an appropriate response including employing the taxation policy and its instruments to ensure both the elements of liquidity and solvency. 

Taxation measures, as response to the present pandemic, have been continuously suggested, published and in some cases found appropriate for adoption in some tax jurisdictions. A sample of those measures are: 

+ deferring tax compliance deadlines and allowing interest free deferrals, additional time for dealing with tax affairs;

+ limiting or curtailing interest and penalties on tax liabilities in case of business directly affected by the pandemic;

+ low interest payment plans for taxpayers encountering payment difficulties;

+ exempting businesses in retail,leisure,hospitality from business rate tax for 12 months (as per UK's pandemic package);

+ faster refunds;

+ tax free grants to SME employers (in UK and Australia) and loans via KfW (in Germany);

+ tax credits for companies whose revenues drop precipitously (in Italy)

+ increase the instant asset write off for all cases of asset purchase in the pandemic period (in Australia);

+ higher depreciation for new assets capitalised in the pandemic period;

+ higher weighted deduction claims for certain employee related expense in specific sectors;

+ deferment of customs and excise duties;

+ waiving or deferring employer and self employed's social security contributions;

+ tax concessions for workers in health and other emergency related sectors;

+ advance tax payments on basis of a revised tax liability that more closely approximates the likely final tax liability instead of using the previous year's sales and profits figures;

+ allowing a one-off loss carry backward for setting off losses of the pandemic period;

+ enhancing taxpayer services and implementing a clear communication strategy;

+ deferring or waiving taxes that are levied on a tax base that does not vary with the immediate economic cycle; 

+ dedicated units within the government to address pandemic related tax issues. 

While designing tax response measures, national governments, nonetheless, would be considering their specific circumstances, specialities and limitations embedded in their respective economies and to what length the available and augmented fiscal space allows them to accommodate the proposed or new alternatives to address the emergent economic issues. Tax stimulus is not cost less much like staying at home, but effective tax measures would mean effective attempts at mitigating the economic impact of the pandemics.

India, as early as 24th of March 2020, has addressed a clutch of significant statutory and regulatory compliance matters including those concerning Income Tax, GST and Indirect Tax. By the way, the priorities for any government would just not be saving lives, but reducing the economic impact, preserve employment and income to the best possible that each government can, with all available resources and policy support. One important task that the revenue officials are eminently capable of at the immediate stage is a systematic assessment of revenue impact owing to the pandemic on a sectoral and range of income cases, a study that would greatly help carve out an informed early snapshot of economic health and targeted policy support. 

While new fiscal instruments including instruments of taxation would emerge to address the pandemic and policy guidelines for budget, finance and accounts rewritten to realistically provide for "contingencies" of this nature, the underlying immediate and long term goal would always be limiting the damage to the productive potential of an economy and protecting the most vulnerable. 

[Views are personal of the author.]

(Sources: Nana Ama Sarfo in  www.forbes.com  dated 3-4-20; Chris Colvin & Eoin McLaughlin "Coronavirus and Spanish Flu: Economic Lessons from the Last Truly Global Pandemic" in "The Conversation" dated 11-3-20 ; Pascal Saint-Amans "Tax in the Time of Covid 19" dated 23-3-20; Andrew Bauer "Put your Trust in Taxes during Coronavirus Pandemic Recovery" dated 5-4-20; Ian Steel & David Philips "How Tax Officials in Lower Income Countries can Respond to the Coronavirus Pandemic", April 2020.)