Coronavirus & its Tax Implications: A Summary from Asia & Latin America
Following up on our blog post of a few weeks ago looking at the tax implications of Covid-19 on the economies of the USA and Europe, today we present an update on what Asia and Latin America are doing in the field of tax to combat the economic ramifications of this pandemic.
Latin America & Covid-19
According to Thomaz Favaro, who works for Control Risks, a political consultancy firm, Latin America will be facing several dilemmas once the coronavirus pandemic runs its course.
As reported by Reuters’ Jamie McGeever, Favaro sees two possible scenarios for the region.
“The key question is whether COVID-19 will force economists and governments across Latin America—and ultimately global investors—to rethink the rules on fiscal discipline,” Favaro said.
“Should countries double down on upfront expenditure to ease the economic pain and help the recovery? Or do the old fiscal rules still apply? Governments may find it is politically untenable to double down on austerity,” he added.
Besides strengthening their health sector as much as humanly possible, an IMF recommendation suggests that countries in the region should “use cash transfers, wage subsidies and tax relief to help affected households and businesses to confront this temporary and sudden stop in production.”
Several analysts see the continent’s economy contracting by between 3.8 and 4.6 percent with Mexico’s economy shrinking by an astounding 8 percent as a result of the crash in the price of oil.
As a way of dampening this blow, the Mexican government announced a massive tax cut worth 2.6 billion dollars for state-owned oil company Pemex.
Chile’s government also announced policies including “transfers to vulnerable individuals, delaying tax payments for companies, speeding up payments to suppliers, and providing additional capital to Banco de Estado.”
Furthermore, as reported by Fitch Ratings, Chile’s “central bank has cut policy rates and the Financial Markets Commission announced other measures, such as allowing borrowers to postpone up to three mortgage payments.”
Brazil has too followed suit, implementing a vast array of tax reliefs in order to curtail the virus’ impact on its economy.
According to KPMG, these include:
- “90-day suspension of deadlines and charges concerning tax debts;
- Tax on financial transactions (IOF) reduced to zero;
- Extended deadline to June 2020 for filing individual income tax return for 2019;
- Extended deadline for information returns related to certain social contributions (including PIS and COFINS);
- Extended period of time for collecting federal taxes;
- Excise tax rates reduced to 0% on products considered essential;
- Import tax reduced to 0% on certain goods, medical equipment, and medicines used to address COVID-19, and;
- Suspension for 90 days of certain tax administrative procedures and suspended deadlines to 30 April 2020 for certain procedural acts in administrative proceedings.”
Asia & Covid-19
Having been hit first by the coronavirus pandemic, nations in Asia are now starting to see some progress as they slowly overcome the virus from afflicting their countries.
Still, Covid-19’s economic impact is being felt, which has forced governments throughout the region to implement a series of fiscal relief policies to jumpstart their economies and markets.
Japan, for example, just announced a $1 trillion relief package, a surprise considering it ranks as the world’s most indebted country.
As reported by Foreign Policy, this package includes a one-time $2,750 and $18,350 loan for households and small businesses, respectively, a series of “delays for required tax and social insurance payments,” and “five-year interest-free loans available to small businesses” made by private financial institutions.
Similarly, China, who’s been struggling with coronavirus since January, has “offered tax deductions, extended loan repayment deadlines and also provided subsidies to affected enterprises.”
Malaysia has also been very proactive in providing incentives to boost the economy, particularly its tourism sector. Policies include “suspended monthly income tax installment payments for tourism businesses,” and electricity rebates and discounts, while “taxpayer[s] will be given up to 1,000 ringgit in income tax breaks for money spent on domestic tourism.”
Furthermore, Singapore has budgeted a $4 billion relief package for its economy. According to Nikkei Asian Review, firms that pay taxes “have been granted a rebate this year equivalent to 25% of corporate tax payable, capped at SG$15,000,” while “hotels and meeting venues will be eligible for a property tax rebate of 30% this year.”
Seemingly, according to the Financial Times, “the most effective measures [in Asia] are generally those carefully aimed at preserving jobs and businesses while maintaining liquidity in important financial markets.”
What else is in line for these markets? Get in touch and let us know!