How Asia-Pacific taxmen are helping businesses stay afloat
Their supportive measures and empathy for taxpayers and leniency in tax return filings and collections during the Covid-19 crisis have been noteworthy.
The Covid-19 pandemic has created unprecedented pressure for businesses and also prompted tax policymakers across Asia-Pacific to respond in a manner not seen in recent history.
Since the start of the Covid-19 outbreak, various tax administrations in Asia-Pacific have swiftly implemented a raft of measures to help impacted businesses and individuals stay afloat. Not only are these measures striking in their decisive support, equally noteworthy is the taxmen's empathy for taxpayers and leniency in tax return filings and collections during this period.
Addressing the health crisis
Several Asia-Pacific governments have introduced specific tax measures to address the health crisis. For example, Malaysia, New Zealand, the Philippines and Taiwan have duty exemptions or concessions for the import of health equipment and supplies, masks and essentials. In a show of support for medical staff, mainland China has provided tax exemptions on additional allowances and bonuses for them and qualifying personnel who have been involved in preventing or treating Covid-19 or handling related emergencies. To encourage the spirt of giving, mainland China removes the donation deduction cap for tax purposes while the Philippines exempts Covid-19 relief efforts from donor's tax and allows full deductibility of the said donations from gross income.
In Taiwan, an enterprise may claim a 200 per cent tax deduction for expenses incurred in the tax year on salaries and wages paid to employees who take leave for one or more in-scope reasons related to Covid-19 infection.
Managing the economic fallout
With cashflow issues becoming an even more pressing concern during a difficult time like this, tax authorities in, for example, Australia, mainland China, Indonesia, New Zealand and Thailand have committed to accelerate VAT or GST tax refunds to release cash more quickly to businesses. In this regard, Australia is allowing taxpayers to change their reporting cycle from quarterly to monthly. Some jurisdictions such as Singapore have granted corporate income tax rebates (capped at S$15,000 in Singapore's case) while Hong Kong grants a one-off reduction of 100 per cent of the profits tax, subject to a maximum reduction of HK$20,000 (S$3,654).
In a further bid to help companies improve their cashflow and liquidity, expanded carryforward or carryback of losses rules have been introduced in jurisdictions like mainland China, Japan, New Zealand and Singapore. Under the carryback of losses measure, tax losses can be carried back to a past profitable tax year where cash refunds can be sought.
Asia-Pacific tax administrations are also giving a leg up to enterprises to help them prepare for post-Covid recovery. Singapore and Malaysia, for instance, have enhanced deductions for renovation and refurbishment of premises. Asset write-off and accelerated tax depreciation claims allowed for investment in plant and machinery are introduced in jurisdictions such as Australia, mainland China, Malaysia, New Zealand, and Singapore, while New Zealand has reintroduced tax depreciation on commercial buildings.
Similarly, measures such as Malaysia's double deduction for training expenses for hotel and tour operators aim to encourage businesses to use this downturn to further train their employees.
Delayed tax return filings and collection
In almost all Asia-Pacific jurisdictions, the filing of tax returns for most tax types has been postponed for taxpayers affected by the Covid-19 crisis, whether applied broadly or to specific sectors or regions. In South Korea, taxpayers diagnosed with Covid-19 and individuals living in special disaster areas such as Daegu are granted a deferral to file returns.
Deferral of tax payments has also been introduced to help enterprises and individuals ease their cash flow. Some tax administrations have gone a step further to waive penalties and interest on late payment of taxes.
Tax measures to address stranded employees
With borders closed and travel restrictions imposed, employees may be stranded in locations against their will, giving rise to immigration and tax issues for both themselves and their company.
In this respect, the tax clarifications provided by Australia, Malaysia, New Zealand and Singapore have been timely. These countries have provided guidance aligned with that of the Organisation for Economic Co-operation and Development, which has clarified that the unplanned presence of foreign employees in a jurisdiction will not cause the business to have a permanent establishment in that jurisdiction and that tax residency will not be affected.
If more jurisdictions can step forward to provide such clarity, it will provide much-needed assurance for many businesses.
What it means for businesses
The swathe of unprecedented measures introduced by Asia-Pacific tax policymakers and administrations during this period have a few key implications for businesses.
First, at this point, it is critical for companies to stay abreast of the various stimulus measures implemented so that they can fully leverage the available support for their business. For companies with presence and operations across Asia-Pacific, in particular, drawing on these various forms of support collectively could make a tangible difference to their wellbeing - and even survival - during this time of turmoil.
Second, businesses should recognise that these unprecedented measures by the Asia-Pacific taxmen are but to a large extent, temporary. In the aftermath of the Covid-19 pandemic, tax policymakers will be tasked with plugging new sovereign debts, and tax authorities will be expected to step up their review and audit activities. As such, even as they avail themselves of the support measures now, taxpayers must continue to remain vigilant and compliant in their tax obligations.
The writer is EY Asia-Pacific Tax Policy & Controversy leader and partner, Tax Services at Ernst & Young Solutions LLP. The views are the writer's only and do not necessarily reflect the views of the global EY organisation or its member firms.
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