Different jurisdictions and companies are being affected by the COVID-19 outbreak in different ways and according to various timescales. Within KPMG International (KPMGI) we look at this in four phases:
- Reaction - the immediate response as the pandemic hits and lockdowns are imposed;
- Resilience - measures required as lockdown conditions continue;
- Recovery - as lockdowns are lifted and business starts to return to normal;
- New Reality - the fundamental changes which will remain even once the threat of the pandemic is passed.
Tax is one tool which governments have to address the situation. Together with Jericho Chambers, KPMGI has already held three roundtables looking at tax policy in the short-term (Reaction and Resilience phases), medium-term (Recovery Phase), and longer term (New reality).
Various tensions emerge in tax policy
Throughout these roundtables a number of dilemmas or tensions have emerged. These are:
- The need to stimulate the recovery versus fiscal consolidation to pay of deficits;
- Multilateralism versus countries’ needing to act quickly and according to their situation;
- The opportunity for fundamental changes versus the need to focus on the immediate short term;
- The opportunity to shift to a greener economy versus putting green issues on hold to concentrate on growth;
- Expert advice versus political possibility to implement measures.
How will these tensions play out as governments develop their response and what will the effect be on the economy, on business and on individuals?
How are governments and policy makers responding?
Across the globe various discussions are being held about the most appropriate tax measures. In Australia there is a focus on driving productivity and using the opportunity of the current moment to consider if the tax system is fit for purpose1. Germany has unveiled a stimulus package which includes a temporary cut in VAT. On 27 May the European Commission (EC) released a communiqué which proposes the EC issuing bonds for up to €750bn to fund recovery grants. The debt would be paid for by increasing taxation at the EU level and proposals include a surcharge on large corporations, a carbon border adjustment mechanism, a plastics tax and potentially a digital tax based on the work done at the OECD. In South Africa the Davies Tax Committee is recommending the Government look in more depth at net wealth tax.
In many places we are likely to see a lively debate about the most appropriate stimulus measures, where and how to increase tax, and the balance between the two. How jurisdictions respond will depend very much on their economic, social, cultural, and political situation.
In her address during the UN High Level Event on Financing in the Era of COVID-19 and Beyond, held on 28 May, Ursula von der Leyen, EU Commission President, called for a recovery which was “green, digital and just”. The question is – is this possible and what part has tax policy got to play?
Roundtable discussions to focus on particular issues
In order to enter into the global debate, KPMG International together with Jericho Chambers, will be holding a virtual series of roundtables from July through September. Clearly it is not possible to look at everything in detail and so issues have been divided into three baskets.
Stimulating the economy
A number of meetings will focus on listening to the voice of business around the world, their concerns and what measures could be considered in order to stimulate economic growth.
A roundtable will focus particularly on the extractive industry. Such businesses provide significant employment and often a large part of the tax revenue of some jurisdictions in the Global South. It is important that there is cooperation between governments and industry to ensure that investment is supported and all parties share in the value generated from resources.
The green recovery
A second set of roundtables will consider the calls from various quarters for a green recovery. Initially these will focus on identifying what measures could be effective in order to support moves to a low carbon, greener, economy. We then intend to consider aspects of the circular economy – and in particular companies would respond if there was a move to shift the tax burden away from employment and more onto environmental damage.
Revenue raising measures
It is possible that some jurisdictions will be able to increase their borrowing and pay for the recovery through increased productivity and economic expansion. But many are likely to have to raise more revenue at some time. How can this be done in a way which is efficient and accepted as fair? This set of roundtables will look at issues such as solidarity surcharges, the difference between taxing capital and income, VAT, wealth and property tax, inheritance tax, global financial taxes and taxing the informal economy.
A write up of the each of the roundtables will appear on the Responsible Tax website https://.responsibletax.kpmg.com/home).
For more information on these roundtables or the Responsible Tax Project please contact Chris Morgan, Head of Global Tax Policy, KPMG (firstname.lastname@example.org)
Chris became Head of Tax Policy for KPMG UK in 2011. In this role he was a regular commentator in the press, as well as on radio and TV, led discussions on various representations with HMRC/HMT. In 2014 Chris spearheaded KPMG UK’s Responsible Tax for the Common Good initiative. In September 2016 Chris took on the role of Head of...