As the business world emerges from the pandemic and we shift to a post-Covid landscape, many Covid-19 tax policies will need to be addressed and changed going forward. In this article, we take a look at some of the changes that are taking place across the globe and how these changes will affect businesses in different regions.
The Covid-19 pandemic placed a massive strain on governments across the world. Many countries had to adapt and overcome to balance the knock-on effects of the pandemic. Governments had to quickly identify areas where they could offer support and ease the strain.
One area in particular where governments could lend a supportive hand immediately was through their tax policies.
In particular, two areas where tax policies were revamped were:
- Extending deadlines and deferring tax payments and tax penalties.
- Offering tax exemptions, subsidies and incentives.
Each year, TMF Group releases the Global Business Complexity Index (GBCI), a report which highlights the complexities of doing business in 77 jurisdictions around the world. The aim is to identify which jurisdictions are the simplest or most complex to operate in, highlighting trends and developments that impact upon the ease of doing business.
This year's GBCI report takes a deeper look at the Covid-19 tax policies that were implemented during the pandemic and how they are set to be reversed or change in a post-Covid world. The report looks at how governments will need to handle the effects of global inflation, slow economic growth and war effects, to name but a few.
Many short-term changes to tax policies were implemented to enable businesses to survive throughout the Covid-19 pandemic. Now, as we emerge into a post-Covid world, most of these tax policy measures are starting to be reversed. We expect that most that are still in place will be reversed by the end of 2022, or in the early part of 2023. Very few incentives will be carried forward – for example, an extension of the ability to carry forward losses.
Some Asia-Pacific regions will continue to apply pandemic tax policies through to the end of 2022, but all other regions have – or are in the process of – reversing most of the Covid-19 tax policies.
Post-pandemic tax policies are being influenced by budget deficits and the need to improve tax revenue collection. Governments will need to establish a fair balance between tax policies that stimulate growth, policies that strengthen tax revenues and tax policies that bring a focus on equity.
In this article, we will take a deeper dive into each of the regions, and take a look at how growth, tax revenues and tax equity is being achieved.
In the APAC region, the main focus centres on tax policies that stimulate growth by extending some of the tax facilities that were available during the pandemic. For example, in Hong Kong and Indonesia, deadlines were extended for filing tax returns.
Other tax incentives that stood out are:
- The application of value-added tax exemptions extended to small businesses in China, or further deductions on newly purchased equipment.
- In Singapore and Vietnam, additional tax deductions were awarded to companies that allowed its employees to facilitate working from home. If employees needed to buy equipment required to carry out their role, the companies could deduct this expenditure.
- Without compromising growth, other jurisdictions have sought to increase tax revenues. Some APAC countries focused on increasing tax rates (such as goods and service tax in Singapore), while other countries, such as Malaysia and Thailand, focused on introducing or extending the tax base via digitalisation.
Governments have to make all taxation fair for local and multinational companies alike and have rolled out tax erosion and profit shifting provisions. Hong Kong is one of the most advanced in the region in terms of transfer pricing rollout, while South Korea and Japan have introduced new rules around transfer pricing documentation and country-by-country reporting.
The APAC region tries to position itself as an attractive destination for foreign investors, while carefully managing tax rate increases and additional reporting requirements (particularly in the transfer pricing area). For companies considering investing in APAC countries, they should carefully assess and understand the available tax incentives, and should prepare their tax functions for any additional reporting requirements.
Europe, the Middle East and Africa:
In the EMEA region, the main focus is around tax equity and policies allowing an increase in tax revenues.
Here is a list of some of the measures that have been taken recently:
- Detailed digital reporting requirements: either for sale invoices only (for example, Serbia and Poland introduced, or will introduce, electronic invoicing) or for all or certain categories of transactions (for example, Norway has introduced SAF-T for general ledger transactions, Slovakia has requested companies to provide information on bank accounts). Detailed digital reporting allows tax authorities to have better control over reportable transactions and tax revenues.
- A focus on voluntary compliance rather than more tax audits: In the United Arab Emirates, tax authorities have taken steps to reduce VAT penalties for non-compliance matters. Now, taxpayers will be allocated time to settle any underpaid taxes before penalties for late payments can be enforced. If taxpayers meet certain criteria, they may also benefit from a 70% waiver of unpaid penalties. The amendments encourage companies to review their historic filing positions and to voluntarily disclose any errors before they are notified of an audit. Businesses are also encouraged to review any outstanding penalties so they can determine if they can benefit from relief.
- An increase in tax rates: Switzerland has announced an increase in VAT rates, while the UK has introduced a new tax on plastic packaging. Meanwhile, South Africa has reduced the allowable expenses for interest.
For any companies currently doing business in this region, or those interested in expanding their operations here, they'll need to effectively organise processes around legal changes and their application. Companies operating in the region must be ready to adapt their accounting and tax tools to accommodate ever-increasing reporting requirements.
US and Latin America:
Authorities in the US and Latin America have focused on tax equity and tax policies that contribute to increasing tax revenues or their collection.
The focus is on rolling out transfer pricing requirements and introducing detailed digital reporting requirements (for example, Mexico and Bolivia are introducing electronic invoicing) as well as on maximising tax revenues by introducing additional taxes (for example, digital tax in Canada), widening the tax base (for example, Chile and Venezuela), or increasing tax rates (for example, corporate income tax in Colombia).
What should companies do?
For cross-border companies, it's important to understand the tax policy focus and the tax measures being applied in a given country. Awareness of such policies will impact the company's business decisions, while a lack of knowledge in these areas will expose the company to compliance risk.
A tax policy focused on strengthening tax revenues should stimulate companies to:
- Have a firm understanding of the tax cooperation mechanisms available in each country. This will allow businesses to take advantage of such mechanisms to minimise or even avoid tax disputes. Our GBCI report shows that 90% of the countries around the world provide some form of tax guidance.
- An increase in digitalisation. This will allow for an easier and faster to response to the digital reporting requirements. Digital tax reporting requirements increase year on year, with the highest level of digitalisation in the VAT/GST area.
Talk to us
As demonstrated above, tax policies are not only an important for authorities in a given jurisdiction, but can also impact upon the success of cross-border operations. Having a firm understanding of what type of tax policies are promoted in specific countries and regions will allow you to better plan your international expansion or manage your existing operations.
TMF Group's global accounting and tax services come with strict local compliance built in. Local experts across more than 80 jurisdictions deliver consistent services and quality wherever you do business.
If you need help or guidance with managing any aspects of your tax obligations, talk to us today.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.