The roll out of flexible and innovative tax policies will allow governments in Asia to raise much-needed revenues to help stabilize their economies while the region grapples with the coronavirus disease 2019 (Covid-19) pandemic.
The Asian Development Bank (ADB) noted that many countries are now adopting changes in anticipation of the projected decline in economic growth and income, particularly of small and medium enterprises (SMEs).
Some of these tax policies include the deferment, lowering, or waiving taxes. However, the ADB said governments must follow the “Three T’s” principle—timely, targeted, and temporary—in implementing the policies.
“These policies should be combined with other financing/liquidity measures to stabilize the economy, in particular targeting small and medium-sized enterprises,” ADB taxation specialist Yasushi Suzuki said in an Asian Development Blog published on Wednesday.
Suzuki said tax policies at this time must be formulated to help businesses and other taxpayers. This means taking a wholistic approach to rolling out tax relief measures.
These measures, he said, would be more effective when implemented with “specific legal and regulatory operational framework, as well as the existing tax policies and incentives.”
Suzuki said governments must become “more flexible” when it comes to tax administration. Flexibility is required in the use of staff to manage service demand and stopping, where necessary, discretionary programs like field audits.
He said there is a need to ease the business cash-flow situation of taxpayers by introducing tax debt payment plans in installments and prioritizing value-added tax refunds to ensure quick payout.
The ADB specialist also urged government to facilitate and ease tax filing procedures.
These strategies can help prevent non-compliance, especially among SMEs, which have been significantly affected by the pandemic. Any stringent tax policies, he said, could unwittingly expand the informal sector or increase tax fraud.
“Tax agencies should be on the alert for these emergent risks. There may be trade-offs between the service demands and tax compliance, however, tax administrators should strike the right balance,” said Suzuki.
Suzuki added that governments must start considering possible tax reforms that may be implemented after the pandemic. These reforms must broaden tax base as well as allow the conduct of a review of incentives.
These changes must be accompanied by reforms on taxes paid by digital companies. Suzuki said these must be revisited under the new international tax standards on digital transactions of the Group of 20 initiative.
“Digital transformation is part of the drive to innovate to increase productivity growth. Middle-income economies in the region have observed the benefits of investment in research and development that is three times bigger than others in the region,” he said.