Caution urged on tax reforms ahead of post-pandemic recovery

4 Sep 20

Raising taxes too quickly would risk harming countries’ economic recovery from the effects of Covid-19, the OECD has warned.

 

Many governments have taken unprecedented fiscal action to respond to the crisis, the organisation said in a report, adding that support measures should be maintained “as long as needed” to avoid long-lasting economic damage.

But this high level of spending, which is seemingly set to continue for an indefinite amount of time, should not lead to rushed decisions on taxation, the report stated.

“Right now, the focus should be on economic recovery,” said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration.

The report said that governments should, in time, move towards structural tax reforms, but acting prematurely “could jeopardise recovery”.

“Once the recovery is firmly in place, rather than simply returning to business as usual, governments should seize the opportunity to build a greener, more inclusive and more resilient economy,” Saint-Amans said.

He added that rising pressure on public finances coupled with growing demand around the world for a fairer tax system showed the international community should not give up on OECD-led efforts to reach a consensus on taxing big digital companies.

“Tax cooperation will be even more important to prevent tax disputes from turning into trade wars, which would harm recovery at a time when the global economy can least afford it,” he said.

Looking at all OECD countries, as well as China, Argentina, Indonesia and South Africa, the report identified major tax policy trends from before the pandemic hit.

It found that, generally, income tax was being reduced for low- and middle-income households, value-added tax rates were becoming more standardised across different countries and corporation tax was declining at a faster pace than before.

Progress was being made on the effective collection of VAT from online sales, but efforts to make environmental taxes – such as on carbon emissions – was slow, and concentrated in a small number of countries, the report said.

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