Accountancy Age spoke to Kate Barton, global head of tax at EY, about how tax will be at the epicentre of the economic recovery – both at a national and global level – to ensure that organisations remain operational and economies competitive during these turbulent times. Whilst governments have provided financial support in these turbulent times, taxpayers will inevitably see changes in their tax systems as national revenues will need to be increased.
How will tax remain vital for the recovery of the economy on a global and national level?
Tax is going to be critical. Right now, the amount of deficit that we have in most countries around the world could only potentially get bigger as many countries face the second wave and go into lockdown. This is far from over. Countries are in debt and will use the tax code at the right time to fiscally stimulate, and then they will pivot, and they will have to raise revenue. I see tax codes around the world as being the number one lever to get economies straightened out for the longer term once we get through this crisis curve of the pandemic.
To what extent can tax be used to ‘repair’ the deficit? What tax will the government target?
What we’ve seen is tax policy was used as we were in an emergency, and almost every country around the world focused on relief. They tried to ease administrative burdens, they gave more time for corporations and individuals to file. They really focused on the economic and fiscal policy measures to try to give grants and loans or delays of tax payments and filing deadlines. Then they moved into a second phase, which is around containment and mitigation of the virus. Once again, tax policy was used to support that phase of the coronavirus. In those situations, the second phase included employee retention, support programmes, last carry backs, and monetisation. It was all about cash. They targeted reducing the rates on consumption and taxes of VAT.
During phase three, in the middle of the pandemic, we are still in the containment and mitigation phase. But once we get to transition and post-pandemic, we’ll see investment incentives – things to stimulate the return to work such as expensing an accelerated depreciation, anything to help our business to start hiring again, and get back on the saddle.
Post-pandemic, that’s when you’re going to see rate hikes and they’ll start to get their fiscally conservative hats on, and they’ll try to revenue raise.
Could the government target the digital services tax (DST) for example?
The DST is critical. That’ll be one of the areas we’ll see new taxes emerge. We’ll also see taxes on big business and ultra-high net worth individuals because we’re seeing the social divide. The rich got richer and the poor got poorer. A lot of the Latin American markets have felt that greatly.
Lastly, we’re going to see tax policy be used to influence the supply chains and where goods get produced. That’s going to be a big trend that we’ll see coming out of coronavirus. The pandemic showed that if the supply chain manufacturing was too far away from the consumer, that maybe it wasn’t good country policy, so there’ll be a relook on where goods are made, and how close they are to the consumer.
In what ways have tax laws and regulations been pushed during the pandemic?
Globally, we’ve seen thousands of laws change. We’ve helped companies staying on top of it. It was dramatic at such a magnitude that multinationals were dealing with countries that could not stay on top of it without sophisticated technology and mechanism to help them with the labyrinth. I call it a labyrinth of complexity because one country’s tax laws might influence another country’s application.
In the United States, we had the Cares Act, and it was significant legislation. It gave rise to employment tax relief, and you could get a credit if you kept your employees retained. The UK, for example, also provided real estate tax abatements, if you were in the city of London and still maintaining your retail shops. Almost every country in the world put out tax change as part of their stimulus package. And more stimulus is coming. The US’ has been put on hold right now due to elections, but we had hoped to get a second stimulus package prior to the election day. It just wasn’t possible.
Do you believe these tax laws and regulations were rushed in the right way?
From a country’s economic perspective, they were much needed. They made a difference in companies being able to keep their employees employed. From the head of taxes perspective, which, obviously, it was just a lot of work. There are still many heads of taxes that are still grappling.
You mentioned that the rich got richer and the poor got poorer during this year’s crisis. What kind of societal issues that you think tax can also tackle post-pandemic?
The tax code can be used in a number of ways. It can revenue raise. Governments will be trying to figure out how they keep their government services going and how they look at the big picture. The tax code can be used for carbon emissions to encourage good behaviour. There’s a lot of complexity, but I do believe tax will play in this climate and many governments will turn to the tax code to come up with some wealth transfer taxes. They are really trying to go after the people that have been most successful to try to shift proceeds to those that are less fortunate. There’s a lot of social agenda in all of those taxes.
One of my concerns is whether or not the tax codes are used in countries to promote nationalistic behaviour, which I just don’t think is good for business long-term. Business, by necessity, must be global. We want to make sure that countries don’t get too nationalistic.
Technology is going to be critical for companies and individuals to grapple with all new change. It’s going to be very hard otherwise to stay on top of it. We’re moving from surviving to thriving. How do we survive in this new world? Technology is going to be what sets us free.