The pandemic might help redefine tax coverage

Countries around the world are dealing with the Covid-19 emergency and are implementing various tax measures to ease the burden on their citizens. In the first phase of dealing with the pandemic, governments focused on handing out stimulus packages and concessions based on affordability and budgetary capacity.

In India, too, the finance minister announced measures to help individuals and employers. The notable actions included: i) Postponing various tax returns and due dates for filing the Provident Fund (PF) and Employees State Insurance (ESI) tax returns; ii) lowering the PF contribution rate; iii) Employer and employee contribution to the PF, which is borne by the government for low earners; iv) lowering the source-deducted tax rates (TDS); v) accelerated issuance of income tax refunds; vi) easing the number of days to consider when determining tax residence for people stranded in the country; vii) Special PF benefits for employers who hire new employees under the Atmanirbhar Bharat Rozgar Yojana. The government also announced the Vacation Travel Concession (LTC) cash voucher system, which helps employees get tax breaks on unused LTC. Such timely, targeted, and temporary interventions could be the kind of tax breaks that can be expected more in the next year. Earlier this year, the Finance Act 2020 also introduced an optional tax system with a lower flat tax rate, with no deduction for individuals.

The government also looked at structural changes to labor laws to encourage economic activity and growth. It has pushed the historic amendment to labor laws and made changes to incorporate 29 existing central government labor laws into four new codes. The labor laws aim to rethink established definitions such as wages, including newer categories of workers such as gig workers, tech platform workers and self-employed workers in the social security arena. The effects of labor laws on companies, employees / individuals and salary structures could be taken into account when the labor laws come into force in 2021.

However, given the ongoing economic impact of the pandemic, governments around the world are trying to mobilize revenue and debate the best route for an immediate collection. Should it be taxes that are collected directly from individual taxpayers, such as B. increased personal income, wealth and property tax? or increased taxes on the consumption of luxury goods; or taxes levied through the digital economy. The dilemma for the governments of developing countries is that they cannot afford major structural changes to impose new taxes or increased collection costs other than to garner the political will to weather possible protests.

Taxation will play a crucial role in shaping future macroeconomic stimuli. In the pandemic-ridden world, the need for expanded taxation on income and wealth has been compounded by expanded tax needs.

Tax compliance and tax law compliance is also being reshaped through increased collaboration among tax administrations around the world. The automatic exchange of information for tax purposes is becoming the global standard. More than 100 tax jurisdictions now work together on a regular basis, which leads to additional income of 107 billion euros through voluntary tax returns, offshore tax investigations and other measures. Transparency helps promote fairness in tax systems and ensures the mobilization of revenue for countries, especially developing countries. Given the recognized success, one would expect a big step in that agenda.

Digitally equipped and well trained tax administrators would help improve tax collection capacity and improve taxpayer services. This is why the Indian Taxpayers Charter makes a lot of sense. Governments will do well to follow the World Bank’s proposals for innovation in the tax compliance program by adopting the EFT mantra – enforcement (which makes it difficult for taxpayers to evade tax obligations), facilitation (so taxpayers can easily meet their obligations) and trust ( Profit) follows taxpayers’ trust by showing that tax money is well spent). This is especially true for developing countries like India, which have had difficulty increasing their tax rates for years.

Could the current crises and their aftermath provide an opportunity to make a major shift towards a fair and equitable tax system supported by changed social behaviors? Could policymakers in India use the pandemic to redefine the tax treaty between government and citizens through smart and balanced tax policies, resulting in sustainable and inclusive growth? Let’s wait and see what 2021 brings!

Sonu Iyer is EY India’s National Head of Human Resources

Subscribe to something As good as new newsletter

* * Please enter a valid email address

* * Thank you for subscribing to our newsletter.