The president’s nod to VSV was given on March 17, and for those who want to pay up by this month-end, the timeline is already tight. Added to it, is the liquidity crunch brought on by the Covid-19 pandemic. On the other hand, the pressure to collect taxes is on, as GoI needs Rs 3.06 trillion from direct taxes and Rs 1.1 trillion from indirect taxes by March-end, to meet the revised estimates of Rs 11.70 trillion and Rs 9.86 trillion respectively.
India Inc, especially some sectors badly impacted by Covid-19, such as hospitality and airlines, will need a lifeline. Layoffs, which seem inevitable across several sectors, will dent consumption pattern and worsen the crisis. Many companies are also sitting on huge debts that need to be serviced. The slowdown will also impact business plans for the coming fiscal year.
Prime Minister Narendra Modi, in his address to the nation on Thursday, has indicated that a Covid-19 economic taskforce will be set up, which will listen to all stakeholders and take steps to minimise the blow to the economy. Many countries have proactively offered bailout packages to business entities, largely in the form of government guarantees for loans, deferral of tax payments and social security contributions. A few have even reduced direct and indirect tax rates.
Britain has rolled out a £330 billion (Rs 33,000 crore) rescue package of loan guarantees. For MSMEs, the ‘business interruption’ loan limits have been hiked with no interest due for six months. Canada’s aid package comprises of Canadian $27 billion ($18.96 billion) in direct support benefits and another Canadian $55 billion ($38.62 billion) to help business liquidity through tax deferrals.
France has put a €45 billion ($48.3 billion) stimulus package on the table to help businesses — a major chunk, €35 billion ($37.4 billion), takes the form of reduced social security contributions. Unemployment benefits will cost €8.5 billion ($9.1 billion), while €2 billion ($2.14 billion) will go towards a solidarity fund for the self-employed and shopkeepers. The US plans to bail out airlines, hotels, casinos, MSMEs and others at a cost of $1 trillion.
In China, the first to bear the brunt of the Covid-19 crisis, for business entities, the carry-over period of losses to future years has been extended, small taxpayers are exempt from value-added tax (VAT) in certain provinces, and the rate has been reduced for all other small taxpayers, employer contribution towards various benefit funds and insurance has been exempted or slashed.
Indonesia announced a $725 million stimulus package last month to support its tourism, aviation and real estate industries, followed by a second stimulus package of $8 billion. This includes corporate tax cuts for select manufacturing sectors. Most countries are concentrating on deferral of the tax payment without any penal interest or prosecution consequences, so as to leave more cash with business entities and individuals.
Americans who owe $1 million or less in tax dues have a three-month extension, until mid-July to pay. Ditto for corporations that owe up to $10 million in taxes. Canada has extended its tax-filing deadline for individual taxpayers from April 30 to June 1. Plus, it has permitted taxpayers to defer payments until after August 31. France and Spain have enabled small businesses to defer tax payments.
A few countries such as Ireland and the US, as well as Hong Kong, have offered direct cash payments to those reeling under layoffs. Leave and self-isolation cash support is on offer in New Zealand, Canada and Singapore. In Indonesia, a six-month I-T exemption is available to workers with an annual salary of $13,000 or less. India will need to quickly close on a package most suited to its needs.