OECD – Tax Administration Responses to COVID-19: Recovery Period Planning

Tax administrations around the globe are taking a series of extraordinary measures to support taxpayers and the wider economy, including through helping to deliver wider government support, while also taking a range of actions to ensure continuity of critical operations and the safety of staff and customers. In order to help inform tax administrations’ decision-making in these areas, the OECD Forum on Tax Administration (FTA), in co-operation with the Inter-American Center of Tax Administrations (CIAT) and the Intra-European Organisation of Tax Administrations (IOTA), has produced two COVID-19 reference documents, one on measures to support taxpayers and one on business continuity considerations1. This third COVID-19 reference document looks at some of the main issues that tax administrations may wish to consider in their planning for the recovery period from the pandemic. This may be a lengthy period given the depth and scale of the economic shock and the likely continuing need for some containment measures.This document has been produced by the FTA Secretariat in collaboration with the Enterprise Risk Management Community of Interest and with the co-operation of CIAT and IOTA. It takes account of input provided by tax administrations, including through virtual meetings, surveys and bilateral discussions. This document does not make recommendations as regards particular measures since national circumstances and considerations will vary greatly. Introduction. 1. Recovery from the profound impacts of the COVID-19 pandemic on people’s lives, jobs, businesses and the wider economy is likely to be lengthy, challenging and multifaceted. Tax administrations, which have played a critical role in the crisis period, will also be central to supporting therecovery. Even during the immediate crisis period there is likely to be significant benefit from early business restoration planning to help identify the main challenges and opportunities for both tax administrations and taxpayers and, where possible, to take early preparatory actions. 2. In undertaking business restoration planning, it will be important to take into account the distinguishing features of the COVID-19 pandemic compared to other crises that are likely to persist during the recovery period. In particular, the continued risks to health, including from further outbreaks; the impacts on staff and administration systems as a result of the need for continuing adjustments; and the potential length and volatility of the recovery period given the depth and scale of the economic shock.

OECD Taxation Working Papers N. 47 – What drives consumption tax revenues? Disentangling policy and macroeconomic drivers

OECD Taxation Working Papers N. 47 – What drives consumption tax revenues? Disentangling policy and macroeconomic drivers. This paper decomposes consumption tax revenues in OECD countries into the implicit tax rate (ITR) and consumption relative to GDP, to identify how economic downturns affect consumption tax revenues. It further considers the impact of changes in VAT efficiency and VAT rates on ITRs. The analysis finds that the observed stability in consumption tax revenues results from offsetting changes in the ITRs and in consumption as a share of GDP, arising from both macroeconomic changes and intentional policy changes. During the economic crisis in 2007-2009, lasting changes in consumption patterns, notably increases in government spending and in private consumption of necessity goods, adversely affected the efficiency of VAT systems. These changes have not since been reversed, suggesting that consumption tax revenues are now less robust to economic shocks. Broadening the VAT base and narrowing the scope of reduced rates can help to stabilise consumption tax revenues during economic downturns. 1. During the economic crisis from 2007 to 2009, tax revenues from all sources fell considerably, with most countries experiencing the lowest point in their tax revenues as a share of GDP for several decades. Among these taxes, revenues from taxes on consumption were typically less affected than revenues from other bases such as corporate income. Over time, taxes on consumption have been seen to be less volatile and more stable than most other forms of taxation (OECD, 2018). This paper examines the reasons for this, disentangling consumption tax revenues to understand the impact of changes in the consumption tax base and the tax system applied to that base. 2. In addition, taxes on consumption represent a large share of both total tax revenues and GDP in OECD countries. Over the last 40 years, revenues from taxes on consumption have been relatively stable, on average, around 11% of GDP and around one-third (32.7%) of total tax revenues. However, during the same period, the mix of consumption taxes has changed markedly due to the growing share of value-added taxes (VAT), which have displaced other forms of consumption taxes in most OECD countries (OECD, 2018). 3. With all OECD countries strongly relying on consumption tax revenues, understanding what drives changes in revenues from consumption taxes is crucial for both policy makers and researchers. The aim of this paper is twofold: first, to identify through which channels consumption tax revenues are affected during an economic downturn, using the most recent economic crisis (2007-2009) as a case study; and second, to understand what drives fluctuations in the overall tax burden on consumption, using the implicit tax rate on consumption as the starting point. 4. The structure of this paper is as follows. Section 2 describes developments in consumption tax revenues across OECD countries. Section 3 reviews the existing literature on analysing changes in consumption tax revenues, before section 4 sets out the methodology used to address the two questions outlined above. In section 5, the presented decomposition is used to analyse the drivers of changes in consumption tax revenues in OECD countries, before Section 6 discusses the results of this analysis as well as avenues for future work.

OECD – Latin America and the Caribbean: Tax revenue gains under threat amid deteriorating regional outlook

Tax revenues in Latin America and the Caribbean (LAC) increased to 23.1% of GDP on average in 2018, according to the new edition of Revenue Statistics in Latin America in the Caribbean published today. However, these gains are now under threat as a result of the region’s deteriorating fiscal outlook, which has been exacerbated by the COVID-19 pandemic and the global economic crisis.

New OECD data provides a baseline for measuring the impact of COVID-19 on labour taxes

Taxing Wages 2020 shows that the “tax wedge” – total taxes on labour costs paid by employees and employers, minus family benefits, as a percentage of the labour cost to the employer – was 36.0% in 2019. This OECD-wide average rate, calculated for a single person with no children earning the average wage,  represents a fall of 0.11 percentage points from 2018.

OECD issues recommendations on implications of the COVID-19 crisis on cross-border workers and other related cross-border matters

The COVID-19 pandemic has forced governments to take strict and in some cases unprecedented measures to protect their citizens, economies and societies, such as restricting or stopping travel and implementing strict quarantine requirements. In this difficult context, most countries are putting stimulus packages in place, including measures to support employment, for example, taking on the burden of unpaid salaries on behalf of companies suffering from the economic downturn resulting from the COVID-19 pandemic. As a result of these restrictions, many cross-border workers are unable to physically perform their duties in their country of employment. They may have to stay at home and telework, or may be laid off because of the exceptional economic circumstances.

OECD – TAX IN THE TIME OF COVID-19, by Pascal Saint-Amans. 23 March 2020

This article is part of series in which OECD experts and thought leaders – from around the world and all parts of society – address the COVID-19 crisis, discussing and developing solutions now and for the future. The number of COVID-19 cases is quickly rising around the world, with major adverse effects on health and mortality. To fight the outbreak and the spread of the virus, countries are imposing unprecedented measures, such as restrictions on the free movement of people and goods, and are shutting down large parts of the economy. The result is that economic activity has fallen sharply in many countries and increased global uncertainty has further eroded confidence. Apart from responding to the escalating health emergency, the immediate economic priority for policymakers is to respond quickly to provide support to households and to improve cash-flow for businesses: we need to keep capacities of production and distribution intact throughout this crisis. The goal is to ensure that households and businesses are able to keep their heads above water until the health crisis can be contained, so that the economy is ready to rebound once the worst of the pandemic has passed. While the OECD will keep working on long-term projects like tax co-operation among countries, international standards to eliminate double taxation, and the mobilisation of domestic resources, we have prioritised work on a range of targeted and temporary tax policy and tax administration measures governments could consider as part of their immediate response. We have also compiled all tax measures taken by governments to produce a useful toolkit. (…)

OECD Taxation Working Papers N. 47

What drives consumption tax revenues?  Disentangling policy and macroeconomic drivers. This paper decomposes consumption tax revenues in OECD countries into the implicit tax rate (ITR) and consumption relative to GDP, to identify how economic downturns affect consumption tax revenues. It further considers the impact of changes in VAT efficiency and VAT rates on ITRs. The analysis finds that the observed stability in consumption tax revenues results from offsetting changes in the ITRs and in consumption as a share of GDP, arising from both macroeconomic changes and intentional policy changes. During the economic crisis in 2007-2009, lasting changes in consumption patterns, notably increases in government spending and in private consumption of necessity goods, adversely affected the efficiency of VAT systems. These changes have not since been reversed, suggesting that consumption tax revenues are now less robust to economic shocks. Broadening the VAT base and narrowing the scope of reduced rates can help to stabilise consumption tax revenues during economic downturns.

OECD – The COVID-19 crisis creates an opportunity to step up digitalisation among subnational governments

OECD – The COVID-19 crisis creates an opportunity to step up digitalisation among subnational governments. Recent decades have seen rapid growth of advanced digital technologies, including high-speed computing, big data, artificial intelligence, the internet-of-things and blockchain. This “digital revolution” creates significant opportunities for all levels of government to improve the delivery of public goods and services, and to raise more and better revenue. This is particularly important in the context of the COVID-19 crisis. Fighting a pandemic while minimising the associated economic costs calls for appropriate digital infrastructure for the design and enforcement of containment measures, as well as to ensure access by the population and enterprises to critical government services. After all, subnational governments (SNGs) account for about 40% of government spending on average in OECD countries; they also play an important role in the delivery of key services that are at the heart of the policy actions being taken to slow the spread of the pandemic, including on health care and social protection. By Luiz de Mello, OECD, and Teresa Ter-Minassian, OECD Fiscal Network.

OECD – TAX AND FISCAL POLICY IN RESPONSE TO THE CORONAVIRUS CRISIS

Decisive action has been taken to address the health and economic crises in the face of major uncertainty – The outbreak of COVID-19 is resulting in a health crisis and a drop in economic activity that are without precedent in recent history. Containing and mitigating the spread of the virus has rightly been the first priority of public authorities, to reduce the incidence of the disease, limit the pressure on healthcare systems and prepare for a stronger rebound as mitigation measures are relaxed. The containment and mitigation measures have had sudden and profound economic impacts. OECD estimates suggest that the containment measures could lead to an initial decline in output between one fifth and one quarter in many economies, with consumer spending falling initially by about one third – these are rough indications that only capture the direct effects of containment in a context of very large uncertainty (OECD, 2020). Uncertainty about the development of the pandemic and the duration of the efforts needed to contain and mitigate the virus is large. The evolution of the pandemic will also depend on ongoing efforts to expand the capacity to test, track and trace, to improve treatments for those with severe symptoms, and to develop a vaccine. Many countries have already acted forcefully to limit the economic hardship caused by the direct effects of containment measures.

OECD – Overview of Country Tax Policy measures in response to Covid-19 crisis

The excel table provides an overview of the tax policy measures that countries have implemented in response to the Covid-19 pandemic.In addition to tax policy measures, the table lists measures that are relevant to tax policy, such as changes in benefits and benefit entitlements. Many countries are providing loans to businesses at (typically) reduced interest rates, provide loan guarantees, etc. These measures have, in general, not been included. In general, the table does not include tax administration measures such as extensions of filing deadlines, changes in penalties for late filing, taxpayer service measures, debt repayment measures, changes in audit policies, debt recovery measures etc. These measures are covered in a separate questionnaire from the Forum of Tax Administration. Nevertheless, the table does include measures related to the deferral or waiving of taxes or of changes to tax refunds, as these measures are tax-policy related.The information in the table covers central governments, but lists also changes in sub-central government taxing powers or financing agreements.The table is presented on a country-by-country basis, but the table can be sorted in type of tax or type of measure (or any other category included in the rows of the “tax policy measures Covid-19” workbook). In addition, the excel file contains two HEAT MAPS – the first worksheet visualises the types of taxes that have been reformed for each country; the second map visualises the type of measures that have been introduced for each country. These workbooks provide an overview of the where the tax policy action has taken place! The list contains information for both OECD and non-OECD member countries. The excel file contains an overview sheet that classifies the tax measures implemented by countries in response to the COVID-19 pandemic. In addition, the “OVERVIEW” sheet indicates the measures that have been taken by OECD member and G20 countries that are not member of the OECD. Please note that the last column in the “tax policy measures Covid-19” sheet allows to search for the date when the information was included for the first time or updated.This allows delegates to identify the most recenlty included information (by sorting by date using the dropbox in the cell on the first row in column M). Please be aware that some of the links can only be accessed if you have a subscription to the underlying source of the information. The OECD Secretariat plans to update this table on a regular basis so that delegates of member countries of the Inclusive Framework of BEPS continue to be up-to-date of the measures implemented in other Inclusive Framework member countries.