COVID-19 - Simple Taxmeasures for Overcoming Extraordinary Circumstances

COVID-19 : Simple Taxmeasures

  • Harpreet Singh, Partner |

Introduction

The Coronavirus emerged in Wuhan, a city of 11 million people in China's Hubei province, in late 2019. The vast majority of this illnesses was restricted to China for first two months. As number of infections have plummeted in China, the Coronavirus outbreak has shaped into a global pandemic spreading across more than 150 countries, India being no exception.

The Indian Government has introduced number of measures, including self-isolation orders, travel restrictions and screenings at airports, suspension of travel visa etc. in order to curb the widespread.

Taxation as part of Government policy can also pay its part to bolster the economy. In fact, if used adequately, some key tax measures, with right timing and implementation may catapult the economy to its feet.

Vide this article, we have highlighted some of the international best practices and how the same can be used in the India context to contain the negative financial ripple effect caused by this virulent contagion.

International best Tax practices amid Coronavirus pandemic

China

Many countries all over the world have been undertaking swift actions to curtail the spread of Coronavirus pandemic. One of the first Country to announce relief measures to contain the damage was China. To help control the spread of COVID-19 and enable businesses and individuals to resume work and production, the Chinese government has successively rolled out different batches of tax and fee incentives.

In terms of frontline support measures, the Government has introduced subsidies and bonuses for medical workers and related staff who participate in controlling the virus and administering treatment. These bonuses are exempt from individual income tax.

Further, said measures also includes:

  • Full refund of newly introduced VAT for producers of important anti-epidemic materials;
  • VAT exemption for incomes derived from transportation of essential supplies
  • VAT exemption on receipt of donated goods for epidemic control; and
  • Tax- free imports of essential items like reagents, disinfectant equipment, ambulance.

Further, for providing support to various businesses, temporary respite has been given to enterprises from social security contributions in order to reduce the labor cost.

On compliances front, due dates for filing returns have been extended and measures have been implemented to promote zero physical contact with the tax authorities.

USA and Canada

The United States has announced slew of measures to combat the deadly virus which has been declared as a national emergency. The U.S. SEC has provided regulatory relief from certain obligations to companies having operations in regions effected by COVID-19. Further, due date for payment of taxes (Property tax, Indirect tax, Income tax) has been extended for effected taxpayers. The U.S. Government has also waived certain excise tax provisions on distilled spirits used in production of had sanitizers.

Further, the States is also contemplating the idea of direct cash payouts as a part of $850 Billion stimulus.

In Canada, tax return filings and tax payment deadlines have been extended.

Asia Pacific

China’s neighboring countries such as Japan, Thailand and Malaysia have also announced a host of measures to deal with the pandemic. For instance, Japan has extended the filing and payment deadlines for individual income tax, gift tax, and individual consumption tax for 2019.

Thai Government has announced several tax relief measures in response to COVID-19 outbreak which include reduced withholding tax rates, enhanced rate of deduction for interest payments made by certain taxpayers, tax return filing extensions and deductions for donations made to support COVID-19 measures.

Italy

Next to China, Italy is the worst effected amongst all the countries in Europe and had to resort to lockdown of entire country to prevent the spread of disease. In response to the current emergency situation, Italy Government has announced that tax hearings other than litigations causing serious damage would be postponed.

In addition, the Government has also announced the suspension of audits of tax returns and other audit, assessment, inspection, collection and litigation actions to address the emergency.

France

Similar to practices adopted by countries like China and Japan, French companies have been allowed to defer the payment of direct taxes. Further, it has been announced that no new tax audits would be started during the COVID-19 lockdown period.

Iceland

Some key measures announced in Iceland include postponement of payment deadline for part of the social security tax, no penalty or surcharge on account of late payments

Germany

Germany has announced slew of measures to provide stimulus to the economy. Following tax-based liquidity and administrative assistance for companies is being planned and discussed:

  • Fiscal liquidity support: Deferment of tax payments, reducing advance payments
  • Enforcement measures: Attachment of bank accounts and late payment surcharges to be waived
  • Increased depreciation of digital assets
  • Increase in the reduction factor for the trade tax credit for individuals

Taxation measures adopted by India

Taking a cue from the international best practices, Indian Government & judiciary have also adopted few nascent steps in this direction.

The Hon’ble Supreme Court, after a meeting last week, decided to hear only the most urgent cases and cut down the number of benches from 15 to 6. Following the lead, majority of the High Courts and Tribunals have announced to only take up urgent matters for hearing and reassume the remaining matters, once this extraordinary situation ends.

Alike the judiciary, the State and Central revenue authorities (such as Haryana, Maharashtra etc.) have also issues advisories and guidelines directing the taxpayers and the officers to hold minimal physical interaction during assessment proceedings. Further, it has been advised to correspond through e-mails, wherever possible. Submission of documents through e-mails should also be recorded as valid submissions and consequential orders should be passed after considering the said submissions. Advisories have been issued to the officers to avoid any physical visits to the dealer’s place of business or residence, wherever possible.

Immediately after Prime Minister Mr. Modi addressed the nation on COVID-19, the Government banned the export of ventilators, surgical/ disposable masks and textile raw material used for preparing masks with immediate effect, anticipating surge in requirement of such equipment domestically.

Adoption of simple measures during these extraordinary times

Albeit the Indian Government & judiciary has taken few steps, India can still introduce various measures in order to curtail the spread of COVID-19 and address the tax concerns arising on account of this pandemic.

Extension of due dates for tax compliance

As an immediate measure, deferment or extension of return deadlines, especially the ones which are falling in the month of March and beginning of April, could be considered. For instance, due dates for Indirect tax compliance (such as filing of GSTR-1 and GSTR-3B for the period of February and March 2020) should be extended to a future date.

Further, there are additional compliance for which due date falls in March 2020. For instance, due date for filing SEIS applications for few years (such as 2016-17 and 2017-18) under Foreign Trade Policy, 2020 is 31 March 2020. The month of March also holds importance for taxpayers entangled in Direct tax litigations and are accordingly willing to opt under Vivad Se Vishwas Scheme (VSVS). In fact, industry at large is already seeking an extension of the March 31 deadline for VSVS till May 15, due to the short time period since the enactment of the Bill and concerns over the coronavirus pandemic.

Given that majority of the multi-national Companies have announced work from home/ leaves, relaxations in due date would support such Companies to continue adopting precautionary measures and motivate other businesses to also allow work from home for its employees.

Extension of deadline for assessments

Given that March is the official closing of the financial year, there is mounting pressure on the revenue officers to close the tax assessments, especially the ones which are getting time-barred by March 31, 2020. This should provide a compelling case for the Government to push deadlines for completion of assessments. Such a step would provide the flexibility to the officers, who otherwise are refusing to give the adjournment for hearings and consequently facilitate the larger objective of social distancing by working from home.

Propagate use of video-conferencing and tele-conferencing

It would be safe and comforting, if all the State and Central departments carry out urgent proceedings or assessments using video-conferencing and tele-conferencing.

Further, documents/ information submitted during such conferencing should be admissible as valid submissions and the authorities must pass the orders taking cognizance of such submissions.

Easing out tax collections and compliance

With the current liquidity crisis, the Government may contemplate temporarily suspension of TDS & advance tax compliances and speeding up disbursal of tax refunds. These measures may provide much-needed cash leverage to the industry, which could already be facing a cash crunch. Hike in composition limit, making return frequency quarterly, waiver of interest and penalties with respect to non-compliance during such trying times, especially for Micro, Small and Medium enterprises are some other ideas worth consideration.

Allowing donations made for COVID-19 for Income tax purposes may also motivate the individuals and business to contribute towards the social cause.

Decreasing/ waiving the import duty rate on anti-epidemic and other essential goods

The Government may consider decrease or waiver off the import duties on essential items such as masks, temperature measure (thermometer) and other medical devices, which are vital for use in this fight against COVID-19.

Providing relief to sectors adversely affected by Coronavirus outbreak

GST could be waived off temporarily for hospitality and tourism companies as these sectors would be worst effected on account of onslaught of Coronavirus. Further, relief measures should also be announced for aviation sector as airline companies are also struggling on account of travel lock-down.

Conclusion

Even though, ‘extraordinary times call for extraordinary measures’, sometimes, even simple measures with adequate implementation, may be enough to take care of the extraordinary circumstances.

Learning from the experience in west, the Indian Government, may consider adopting some of the simple measures discussed above, to overcome the upheaval of the pandemic. Hopefully, some of the ravage caused by complete halt in economic traction could be quenched, where timely implementation is undertaken.

 

This article has been co-authored by Mr. Kartik Bahl.

A version of this article was published in GST Sutra on 23 March 2020.