Amid the COVID-19 pandemic, countries around the world are implementing various emergency tax relief to support companies, especially small businesses and their employees.
As the business and social impact of this health crisis increases, government and business leaders have a crucial role to play in developing both short-term and long-term solutions to mitigate the risks and continue to create values without compromising people’s health and the economy at large.
Now more than ever, world leaders and citizens must work together, cooperate and adopt best practices to manage the impact of the coronavirus. Immediate action is critical, but governments must consider this as an opportunity to fix distorted tax policies and help companies and their employees prepare for the new normal in the coming months through a more focused and strategic economic recovery plan.
Here are some of the economic tax relief plans consolidated by the Tax Foundation, which the Philippine government can consider in preparing its economic recovery plan:
- Australia introduced a wage-subsidy scheme through which employers will be able to receive a $1,500 payment per retained worker every two weeks;
- Austria is reducing income and corporate tax prepayments, deferring tax payments, allowing taxes to be paid in installments, reducing or providing relief from late tax payments, and suspending tax audits;
- China has reduced its VAT from 3 percent to 1 percent for the cash accounting program 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;
- Canada introduced a 75 percent wage-subsidy to employers for up to 12 weeks;
- Greece will suspend VAT payments due at the end of March for four months, and VAT for businesses affected by the coronavirus are postponed to August 31. Companies’ social security contributions will be suspended until June 30. VAT reduction will be 6 percent from 24 percent for products related to preventing spread of coronavirus. The sales lists filing for 2019 have been delayed to June 30;
- Indonesia plans to waive income tax for individuals for six months as it seeks to boost purchasing power;
- Japan has extended the deadlines for individual income, consumption, and gift tax filing and payments indefinitely, and taxpayers are advised to pay and file when they can. Japan has allocated ¥446 billion in response to the pandemic;
- 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 taxes) for all payments due after February 29, 2020;
- Malaysia is exempting accommodation services (including hotels) from the 6 percent services tax and providing sales tax exemptions and lifting import duties on equipment and machinery;
- Norway has cut its reduced VAT rate for a third time during the coronavirus crisis, this time from 7 to 6 percent. This will apply from April 1 to October 31, 2020;
- Poland is allowing certain corporate and individual taxpayers to offset tax losses incurred in 2020 against taxable income declared in their 2019 income tax returns;
- Singapore has deferred corporate income tax payments for April-June for three months so payments that were due in April are now due in July. Property tax rebates will be given to commercial properties affected by the coronavirus, such as hotels, restaurants, and stores. Qualifying employers can get a grant of up to 25 percent of their gross monthly payroll from October to December 2019, capped at $4,600 per employee per month;
- South Africa is providing a tax subsidy for lower-income individuals, and small businesses can delay 20 percent of payroll taxes for four months;
- South Korea is cutting its VAT for small businesses, giving tax boosts for consumers replacing their cars early, and providing a new tax deduction on personal credit card spending;
- Thailand’s cabinet approved cutting the income withholding 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 THB 412,000. Thailand is also extending the personal income tax filing deadline from June 30 to August 31, and direct aid will be given to 3 million people, at THB 5,000 per month for three months;
- Taiwan will allow taxpayers to postpone their taxes by one year or pay their taxes by installments for up to three years.
In the Philippines, the Department of Finance is preparing an economic bounce-back plan, which is part of the P1.17 trillion worth of fiscal, budgetary and monetary measures. Part of this is the P50.8-billion small business wage subsidy program for 3.4 million workers of small businesses. The subsidy will range from P5,000 to P8,000 per beneficiary. Under this program, small businesses are defined as those not belonging to the top 2,745 large taxpayers of the Bureau of Internal Revenue (BIR).
Even prior to enhanced community quarantine (ECQ) extension, the Department of Trade and Industry, together with other government agencies, has already extended assistance to micro, small and medium-sized enterprises (MSMEs), to wit:
1. A minimum 30-day grace period on residential and commercial rents falling due within the ECQ period, without incurring interests, penalties, fees and other charges;
2. Unhampered movement of cargo and transit of personnel of business establishments allowed to operate during the ECQ of Luzon;
3. Setting up by the Small Business Corp. of the P1-billion enterprise rehabilitation financing facility under the Pondo sa Pagbabago at Pag-asenso (COVID-19-ERF) to support micro and small businesses affected by the economic impact of the coronavirus in the country. Microenterprises with asset size of not more than P3 million may borrow P10,000 to P200,000 while small enterprises with asset size of not more than P10 million may borrow a higher loan amount but will not exceed P500,000 at an interest rate of 0.5 percent;
4. The Livelihood Seeding Program–Negosyo sa Barangay amounting to P203 million was established to provide a package of livelihood kits and business advisory assistance and services, amounting to at least P5,000 up to P8,000 to MSMEs;
Surprisingly, the most proactive and considerate in extending assistance to businesses is the BIR. After extending all the deadlines falling due within the ECQ period, it has exempted all donations for COVID-19 and suspended all audit and investigations. However, taxpayers are reminded to keep themselves updated of the latest issuance to avoid confusion.
While we laud the government’s efforts in helping our MSMEs, here’s a bucket list of tax relief that can really address the cash flow or liquidity issues of a lot of small businesses while helping the government collect taxes from large taxpayers and those who can afford:
1. general tax amnesty
2. lowering of corporate income tax from 30 percent to 25 percent
3. tax credit or rebate for employees
4. tax holiday for MSMEs
5. no audit program for large taxpayers
And what can businesses do during the lockdown to prepare for tax audit and investigation once the suspension is lifted? INQ (To be continued).
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines, or MAP. The author is a member of the MAP tax committee and founding president of the Asian Consulting Group (ACG) and the Center for Strategic Reforms of the Philippines (CSR Philippines).