The Financial Express

Tax policy response to Covid-19

Jamal Ahmed Choudhury | Published: May 05, 2020 22:08:00 | Updated: May 11, 2020 21:26:46

Tax policy response to Covid-19

We are now passing though a very tough time. With many of the businesses around the world shut, industrial activities at a standstill and people locked in their houses, doctors and medical professionals are fighting their best to save lives. The economic impact of this invisible war is far-reaching, and no one knows for sure when the crisis will be over.

The world economy shattered by Covid-19 is expected to contract by 3 per cent in 2020 as against originally projected 3.6 per cent growth. Many countries are taking temporary monetary and fiscal measures to face the immediate challenges to save lives and support businesses while drawing up long-term plans. Government of Bangladesh also quickly responded by announcing a number of monetary stimulus packages. These includes easy lending of money for businesses to meet their urgent cash flow and working capital needs, low interest credit facility for agriculture and SMEs, and enhancement of allocation for the social security spending to provide food support to the ultra-poor. These are definitely welcome steps from the government. The quick response from the state will help build confidence of the business and entrepreneurial community in particular and people in general.

With the country and the globe in lockdown for an uncertain period, supply chain disrupted, and a recession is inevitable, some tax policy measures need to be taken on an immediate basis before resorting to long term policy adjustments. Different countries adopted a number of tax measures to mitigate the current crisis. These broadly aim at resolving the immediate difficulties of taxpayers, ensuring higher cash flow for the household and businesses, and encouraging investment and consumptions to cope up with the ensuing recession. Unfortunately however, we have seen no such initiative as yet from our tax policy makers. In the light of the global initiatives, we may suggest our policy makers to consider the following as initial steps to address the situation:

CRISIS MANAGEMENT TEAM TO HANDLE TAXPAYERS' CONCERNS DURING LOCKDOWN: Tax authorities should resolve the concerns of the taxpayers on a quick and timely basis. A taxpayer who has a return due or missed a filing deadline or failed to appear a tax hearing or could not comply with an audit query during the lockdown period does not know what will be the consequences for non-compliances. NBR should form a crisis management to handle the taxpayers' concerns and grievances during lockdown time and provide necessary guideline. 

TIME EXTENDION FOR FILING OF RETURNS AND WAIVING PENALTIES FOR NONCOMPLIANCES: Businesses are required to submit various returns at periodic intervals, most frequent being monthly VAT Returns due on 15th of every month. With businesses closed and movement restricted, it was almost impossible for the companies to submit the March return on 15th of April. Submitting VAT return means involvement of a good number of people with a lot of paper works (these are not online-ready in most cases).While the government is asking people to stay home and keep their business operations shut, how they can submit the Returns within 15th. The Bangladesh Federation of Industries and Chambers made a request to extend the filing timeline but got no response from the NBR. Almost every country in the world extended the timeline for filing of Returns, giving relief to the taxpayers. India, Sri Lanka, Singapore Malaysia, Vietnam have considered the taxpayers' difficulties and extended various return filing deadlines. India, for example, has deferred submission of Goods and Service Tax Returns for the month of March, April and May till June 30. No interest, late fees or penalties are charged for the small companies (less than Rs 50 million turnover) while a reduced interest is payable by the others for the late submission.  

We have our VAT filing due on  May 15. There are some other compliance reporting requirements as well. Under current circumstances it will be difficult to comply with the regulations. Companies that  fail to meet the filing deadlines will have to face penalties for non-compliance as per tax rules, which is very much unwarranted. Our revenue authorities should consider the situation and extend time for submission of various returns, if any due in the current quarter. They should also waive the penalties or other charges for any non-compliance until the situation gets to normal. It is understood that NBR has concern for revenue which is linked to the submission of VAT returns. In that case, they may at least temporarily allow the taxpayers to make treasury deposits based on their estimated revenue pending submission of the related documents.

DEFERING PAYMENT OF  TAXES AND REDUCING THRESHOLD LIMIT: Businesses will face severe cash flow challenges to continue their operations. Through fiscal policy measures, the revenue authorities can help improve the cash flow of businesses. Many countries used the deferral tool to help the cash flow constraint. Some have straight away deferred income tax and other tax payments for two to three months while others have given this as an option to the companies to apply for deferral if they are in difficulty. Even a small country like Bhutan has deferred income tax payment by a quarter. In Bangladesh companies are required to make advance payment of their estimated income tax on a quarterly while VAT on a monthly basis. NBR may consider deferring these taxes at least for a quarter for those severely hit by the crisis. Alternatively, they can at least, give an option to the companies in distress to apply for such deferral and grant approval on a selective basis after due consideration.

Secondly, current year's advance tax is computed on the basis of a prior year's tax filing. Almost all businesses and industries will miss their revenue and profit targets in this crisis. NBR therefore, should reduce the threshold limit of advance tax payment. Indonesia, for example, declared a 30 per cent reduction in monthly Advance Corporate Income Tax payments. Without such revision, companies will be forced to pay excess tax which will become non-refundable due to minimum tax criteria -- an irrational provision of our Income Tax law. 

POSTPONMENT OF COMPULSIVE DIVIDEND PAYMENT REQUIREMENT: Last year, a new provision was inserted in our tax law through the Finance Act that requires listed companies to pay at least thirty per cent of their profit as dividend. It has been made effective from the current fiscal year. Failure to comply with the provision calls for penalising tax. In the present situation many companies in the world are going bankrupt for their inability to meet the obligations owing to cash constraint. Businesses in Bangladesh will also encounter severe cash flow deficits due to lost revenue and economic downturn. While the government is taking up bail-out actions to protect businesses and extending lenient credit facilities to help improve the their cash flows, any regulatory compulsion to pay dividend will be contrary to the very purpose to rescue the businesses. NBR, therefore, needs to consider revision of the aforesaid provision in the present context.

DECLARING Covid-19 CHARITIES TAX EXEMPTED EXPENSES: Many individuals and enterprise have come forward for the help of the poor and disadvantaged people through various charitable contributions. Many organisations have also contributed to help government's healthcare logistic needs. NBR should declare them as tax exempt expenses immediately to encourage further voluntary contribution.

TAX EXEMPTION FOR HEALTHCARE PROFESSIONALS, SMALL AND MICRO BUSINESSES AND SELF EMPLOYMENT INITIATIVES: Current year's tax for all deserving doctors and healthcare workers who have come forward risking their lives for the treatment of the Covid-19 patients may be exempted as a reward for their contribution.

Individuals who temporarily lost their jobs or were under layoff due to the crisis should also be declared exempted from payment of tax including the minimum tax for the year 2019-20.

Country's growing and vibrant small and micro enterprises including agriculture, poultry and fishery, information technology, cottage industries etc., employ millions of people. Additionally, there are various self employment initiatives by our young entrepreneurs. They all are in real distress due to the pandemic and require special tax policy support for their sustainability. Specific policies are required to reduce their tax burden including VAT. Thailand, for example, has allowed 300 per cent deduction on salary payments and 150 per cent deduction on the interest expense of the SMEs as a means to reduce their real tax burden in the Covid-19 crisis.

Proposals placed above are few mitigating measures that our revenue authorities need to consider on priority basis while drawing up long-term policies to support individuals, corporate and other business sectors to tackle the challenges ahead. There is no denying the fact that exemptions and reliefs through tax system have impact on the government revenue collection. But at this crucial time, sustainability of business and livelihood is the key concern. Covid-19 has a varying degree of effect on different industries, sectors and regions. Garments or tourism, for example, are more severely hit than Pharmaceuticals or Tobacco industry, although they all suffer to some extent directly or indirectly. Likewise, not all have the same level of strength to withstand the loss. It is, therefore, important that we adopt sector or industry-specific policies rather than a one size fits all strategy to confront the challenges.     

Jamal Ahmed Choudhury is Past President, ICMAB.






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