The UK was quick to recognise the risk to its economy from the Covid-19 crisis. It introduced an immediate deferral for the payment of standard VAT returns for the period 20 March through to 30 June. Other countries have taken similar measures across the globe.
Sales taxes - VAT and Goods and Services Tax (GST) - are global taxes. They are generally immediate taxes and so can be used to provide immediate financial support to businesses.
Examples of measures introduced in response to Covid-19
Measures include:
- Extension of time to submit returns - eg. Chile, Iran, Portugal
- Deferral of payments - eg. UK, Canada, Thailand, Germany
- Accelerated refunds - eg. France, Latvia, Australia
- Reliefs for specific sectors – eg. China; Cyprus, Indonesia
- Reductions to rates - eg. Norway, Jamaica, Kenya
Some countries have chosen to rely on other tax reliefs, meaning businesses have to continue to submit returns, account for any sales tax due and risk penalties for non-compliance.
Other actions for essential goods
The UK has introduced reliefs to remove the VAT cost on required medical equipment. This allows for essential goods to be imported and provided free of charge to hospitals with no VAT or Customs Duty costs. This has been an issue in the past when vital equipment was held at ports and unable to be released to help disaster relief efforts due to import tax obligations. The UK was quick to remove this potential blocker.
Positive & immediate action
These measures normally require a lengthy period of consultation and consideration by Treasury and Ministers. The speed and diversity of action demonstrates how flexible sales taxes are and how quickly they can be used to implement government policy in the national interest.
What’s next?
We have seen a reduction in the UK VAT rate previously to help during economic downturn. When the health emergency recedes there are likely to be continuing measures to stimulate the economy.
There are a number of indirect tax options to help achieve this. This might mean an extension of the sympathetic approach to time to pay arrangements, an increase in VAT reliefs for parts of the economy that are struggling and a reduction to the standard rate of VAT. Sales taxes are transaction taxes and the economy will need to encourage transactions to help the economy recover as quickly as possible.
We are constantly reviewing the latest guidance and updates from HMRC to keep you informed. Please get in touch if you require any support during this period.
