Italy, which has been hit hard by the coronavirus pandemic, has suspended its tax authority until further notice. (AP)
"Speed really is of the essence," said Kimberly Clausing, a professor of economics at Reed College in Portland, Oregon.
But every approach carries potential drawbacks and gaps in coverage at a time when ideal solutions are all but impossible.
Value-Added Tax Reductions
At least 30 countries have offered struggling businesses some kind of VAT relief, according to Richard Asquith, vice president of global indirect tax at Avalara Inc., a tax-filing software company.
While Japan considers slicing its overall VAT rate in half, countries such as Vietnam, South Korea and Thailand are implementing consumption tax relief for specific industries and products, according to Asquith. Meanwhile, other countries are offering more modest and targeted relief for companies that can demonstrate financial difficulties due to the outbreak.
Ireland, for instance, is waiving interest on late payments for VAT and Australia announced last week that it would allow some companies to apply for goods and service tax refunds ahead of schedule. More European Union countries are expected to announce measures after the European Commission recently announced it would not consider such actions as violating its rules against giving industries aid.
Because companies must remit value-added tax payments from their customers, a temporary pause in government collection gives them immediate access to cash they're already holding, Asquith said.
"Traditionally, there are four or five reasons why countries like VAT, and one of them has always been that it's very immediate," Asquith said. "You can put your VAT rate up and down, very, very quickly, and you'll get the benefits literally immediately."
But while a VAT reduction gives companies some temporary help, it doesn't necessarily help consumers who are reluctant — or unable — to visit stores and restaurants. And once sales start to dwindle, the value of VAT relief would shrink.
"It's a little unclear that you're getting a lot of bang for your buck there," Clausing said.
Other Cash Flow Assistance
Australia also announced measures that would allow companies to claim deductions on new investments faster — similar to the full expensing passed through the 2017 Tax Cuts and Jobs Act
.Under Australia's program, more companies can now qualify for "instant asset write-off," while the amount they can deduct was raised from AU$30,000 ($18,300) to AU$150,000.
Ireland also announced it would defer interest on late payments on its "Pay As You Earn" system, in which employees pay income tax through their employers, similar to the U.S. withholding system.
Tax Deferral
Many countries have allowed companies to temporarily defer their own tax payments. Italy, under one of the harshest shutdowns in the world as it deals with an unprecedented outbreak, has suspended its entire tax administration until further notice.
Germany announced Friday that it would give revenue authorities the leeway to defer tax payments "if their collection would lead to significant hardship," while also allowing those companies to reduce prepayments and waive penalties.
Some say the range of measures also demonstrates the limits of using the business tax system as a way to prop up the economy. Current measures are aimed at business liquidity, which make sense, according to Kevin Milligan, a professor of economics at the University of British Columbia.
"But that's clearly not enough, because beyond liquidity, we also have a huge shock to revenue, especially to certain sectors," he said. "Everything needs to be on the table."
--Editing by Tim Ruel and Neil Cohen.
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