(Tax) Life Goes On?
Kitty Miv, Editor
05 June, 2020
Taking a break from all things COVID-19 related this week, and governments around the globe are giving some thought to the likelihood that humans will need to co-exist with the virus for some considerable time before an effective vaccine or treatment is found, and that as such, some way must be found for life to carry on in as normal a way as possible.
With that in mind, then, the threads of temporarily abandoned reform processes are now being picked up again, and new tax initiatives are being tentatively considered once more, and it is to this that we will turn our attention this week.
We begin with the Philippines, which featured in last week's column owing to its plans to launch a digital tax system in order to harness the production and provision of digital goods and services as an additional revenue stream.
Also under consideration, however, are plans to cut the country's corporate tax rate by five percent, to twenty-five percent, from July 2020. Chair of the Senate Committee on Economic Affairs, Senator Imee Marcos has called on the Philippines Congress to pass legislation to facilitate the cut ahead of the June 5 recess, arguing that the rate reduction needs to be passed as a stand-alone bill separate from the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE). The proposed measure doesn't quite fall outside of the COVID-19 circle, however, as the stated aim of the legislation is to provide economic relief to businesses, minimize lay-offs, and attract foreign investment amid the coronavirus pandemic.
In Germany, meanwhile, late last month, the Cabinet agreed on new regulations that will set higher carbon prices from 2021 than those originally envisaged in the Government's Climate Protection Program, which was partially approved by Parliament in November 2019.
Initially, the scheme entailed the introduction of emissions allowances at EUR10 (USD11) per tonne of CO2 in 2021, rising to EUR35 per tonne in 2025. Then, from 2026, carbon permits were to be auctioned, with the program setting a minimum price of EUR35 per tonne and a maximum price of EUR60 per tonne in this second phase.
The changes mean that carbon allowances will be set at EUR25 per tonne in 2021 and will increase to EUR55 per tonne by 2025. From 2026, carbon permits will be auctioned within a price band of EUR55 to EUR65 per tonne.
In Kenya, as in the Philippines, digital taxes are in the Government's sights, with legislation for a newly proposed digital services tax to be imposed at a 1.5 percent rate included in the Finance Bill 2020, which has been tabled before Parliament.
According to the Kenyan authorities, the tax would be levied on the gross value of transactions with consumers in the country, and aims to ensure that digital marketplaces deriving income from digital activities with Kenyan consumers pay tax in Kenya. Both resident and non-resident entities would be subject to the levy, and multinationals will be able to credit digital services tax payments against their corporate tax liability for the year.
The legislative provisions would become effective from January 1, 2021, if they are enacted by the end of June 2020 as expected.
Digital tax matters were also on the table for the European Commission, which has published an economic recovery plan (as part of its response to the coronavirus pandemic, it's true...), which includes a possible digital tax, a crackdown on tax fraud, in addition to revisiting its proposals for a common consolidated corporate tax base.
The Commission intends to borrow EUR750bn on the financial markets to fund the package. To repay these funds, the Commission will propose a number of new "own resources."
According to the EC plan, options for reform could include a new digital tax on companies with global annual turnover over EUR750bn, which could raise an estimated EUR1.3bn per year, and a Carbon Border Adjustment Mechanism, which could take the form of a tax on imports to the European Union that do not face environmental levies equal to the EU's in their country of origin.
The Commission also announced its intention to "step up the fight against tax fraud," in an effort to ensure that "solidarity and fairness is at the heart of the recovery" and to help EU member states generate the tax revenue needed to respond to the current crisis, and additionally returned to the proposal for a Common Consolidated Corporate Tax Base (or CCCTB), which it argued "would provide business with a single rulebook to compute their corporate tax base in the EU."
Anyway, I think that's quite enough to be going on with for the moment, so... until next week!
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