5 Tax Administration Measures In Covid-19 Environment

As the saying goes ‘Health is Wealth’ and when there are health and hygiene, then there would be wealth, income and taxes. Without a happy and disease-free environment, an economy cannot progress to the next level. A quick glance of this principle could be seen from the recent widespread of COVID 19 virus pandemic across the globe. A living matter, that could not be seen by best of human eyesight is capable of pulling the entire global economy in slow down.

Let us quickly understand what are the repercussions of the widespread virus on the economy. The consumer’s buying preferences would change. The consumers would want to avoid crowded places whereas luxury and comfort goods would take a back seat. The consumer would focus on daily necessities. This would lead to a fall in general demand for goods and services. On the other hand, due to lockdowns the supply could also be curtailed impacting the business directly. Which means instead of growth to the next level the circulation and exchange of money would slow down or stagnate. With the reduction in demand and supply, the impact could be seen on the factors of production i.e land, labour, capital and entrepreneur. In nutshell, Markets over the world would see a slowdown and crude would fall leading to the fall in overall demand.

With so many changes happening around the globe, taxation law and regulation cannot stay static with rules framed that are tuned to the time of growth. The taxation laws need the flexibility to adapt to such changes and incentivise with a boost in the right direction, which would help the nation to overcome such a pandemic. The nation would be saving on some import bills thereby maintaining the balance of trade position, where there is more to save than to spend. Without singing the song of growth in the troubled times the following could be the possible thrust areas from a taxation perspective.

  1. Specific COVID 19 deduction for all salaried class – The year FY 2020-21 would not yield great results for an enterprise, thereby leading to stagnant salary or lower salary for the salaried class. Further, such salaried class has spent their hard-earned salary income on preventive measures including sanitation and medication. In some way or the other, the salaried class have contributed to the economy by avoiding the spread of the pandemic across the country. Such an effort may need to be remunerated by providing a specific tax break for FY 2020-21. The Government may like to announce a special CoVID 19 deduction of flat INR 75,000 to the salary income irrespective of the levels of salary. Such a deduction could be given irrespective of the salary and taxation structure selected by the employee. Such a saving in taxes would compensate the salary stagnation for FY 2020-21.
  2. Accelerated deduction for CoVID expenditure – As a preventive measure, many organizations have undertaken targetted expenditures for keeping their office premises and employees in safe conditions. Such an expenditure goes a long way in contributing to restricting the spread of the virus. Such an entrepreneurial effort could be rewarded for FY 2020-21 by giving an accelerated deduction of 175%-200% of such expenditure undertaken by the enterprise.
  3. Deferment of Dividend taxation and resort to the older regime – The new dividend taxation comes in effect from 1 April 2020 replacing Dividend Distribution Taxation (DDT). Most of the listed companies in India declare their results by 31 May 2020. Considering a little time is left and the TDS regime around the new dividend taxation could be challenging for a few company’s accounting and taxation teams with work from home policies being implemented, it could be a wiser decision to continue the older regime of DDT for FY 2020-21. This would prompt the companies to declare dividends to the investors especially the foreign investors who would continue having an interest in the Indian companies due to receipt of tax-free dividends. Also, it is suggested to reduce the overall effective rate of DDT to 15% inclusive of all components and grossing up. Such a deferment could kill two birds in one shot, the first one being overburdening of accounting and taxation department thereby compromising on work from home policies and second is the protection of investor’s interest in plunging money markets.
  4. GST exemptions and rate cuts – The Government should take measures to make due changes to the GST rates for necessity and emergency goods and services for a certain period. This way the products could be made available to the public at large at affordable prices. Further, due checks to be placed to avoid the holding of necessity products. In addition, the compliance burden of monthly GST returns and payouts could be modified to quarterly for all taxpayers from 1 April – 30 June 2020
  5. Paperless and contactless audits and assessments – Although the infrastructure is in place of paperless audits and assessments, the tax officers need to take up such an attempt to undertake assessments in real faceless situations. A recorded call with the authorised representative or the company management should suffice the explanation. This initiative would go a long way in curtailing the virus and also other evils.

The above 5 measures are broad level policy thinking tanks that the government could adopt and implement in the near future. Often in times of difficulties, the nation’s administration has to lead from the front and set an example to the world to graduate to the next level. Every time economic growth is not the only motive of a nation. The current situation needs every support from the Indian administration to bring us all together in the fight against the Virus. In such a case the government should not leave any stone unturned to perform its duties in the right direction. As rightly said by Kautilya “The foremost duty of the Government is to keep his people, happy and contented. The people are his biggest asset as well as the source of peril. If they are Unhappy and dissatisfied, they will revolt against him and overthrow him.” 

Best Regards

Team TransPrice