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Governments Chase The COVID Cash

Kitty Miv, Editor
29 May, 2020

For the past few weeks in this column, we have been looking into the tax assistance that governments around the world are seeking to provide to businesses and taxpayers struggling to deal with the current impact and likely future implications of the COVID-19 pandemic. However, as is usually the way at moments of crisis, eventually attention turns to how best to capitalize on the changed situation, and it is at this point that we now appear to find ourselves.

Whilst many firms and individuals have been obliged by the current circumstances to bring more of their operations and functionality online, in order to minimize both travel and physical proximity, the authorities in some countries, for example Poland, are seeking to leverage this from a taxation perspective.

To this end, Poland's Parliament recently endorsed a law to introduce a 1.5 percent tax on revenue derived by on-demand media streaming services.

The measure, which must still be approved by Poland's President, would become effective from July 1, 2020. (Although in the opposite of a 'sting in the tail', it was explained that revenue from the measure would be ring-fenced to prop up Poland's struggling indigenous film industry.

In Indonesia, meanwhile, according to local media reports, the authorities are planning to introduce a tax on video and game streaming services and on certain digital services, also starting July 1, 2020.

The tax will apply at a rate of 10 percent, according to the Department of Finance, and is intended to level the playing field for domestic providers of digital products, and presumably take advantage of the increased popularity of such services at the same time.

Then, the Philippines, never one to shy away from an opportunity to tweak its tax system, is also reportedly considering the introduction of a digital services tax.

According to national media reports, Joey Salceda, the chairman of the House Committee on Ways and Means, has tabled a bill to establish a fiscal regime for the digital economy.

According to Salceda, "When you're a network in the Philippines, advertising services paid to you will be subject to VAT. But Google and Facebook are not subject to VAT for advertising."

The state news agency, PNA reported that Salceda's proposal aims to fairly capture the value created within the tax system, ensuring that services rendered electronically in the course of trade or business are liable to VAT. It would also clarify that digital advertising by platforms such as Google or Facebook, along with subscription-based services like Netflix and Spotify, are subject to VAT. Those who provide digital services would be required to do so through a resident agent or a representative office in the Philippines.

Finland, on the other hand, has opted for a slightly different path, looking more broadly at measures to increase the country's tax take post-COVID, and at ways to increase compliance in a number of areas.

Earlier this month, for example, the Finnish Government published a report which explores the economic and fiscal consequences of the COVID-19 pandemic for Finland and considers what taxes could be increased to help restore the public finances.

The report observes that Finland already has one of the highest tax burdens in the world, especially on labor. Therefore, raising taxation poses the risk of damaging Finland's competitiveness, it warns, but goes on to identify certain tax areas in which there is scope for revenue increases without threatening the economy.

These, according to the report, are: property taxes (which tend not to be economically distortive and affect largely wealthier taxpayers); corporate tax (where there is scope available to reduce the tax advantages of unlisted companies); environmental taxes (with the taxation of fossil fuels increased further); and value-added tax (maintaining a focus on reduced VAT rates rather than the standard rate).

The Finnish authorities also took the opportunity recently to remind sharing economy platforms that they must report details of ride sharing and rental activities from 2021.

New rules state that the reporting obligation applies to passenger transport and property rental services when arranged via an intermediary. In the case of accommodation, the obligation applies when a property is partially or fully rented out, and all such platforms are required to report to the tax authority in electronic format on an annual basis.

According to the tax authority, the first reports, relating to 2020 revenues, must be submitted by January 2021; this slight delay will no doubt come as a relief to providers of sharing economy services, which will first need to concentrate on securing custom again on which to pay tax, of course!

Until next week...

Tags: Government

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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