Looking back at the first half of 2020, it’s clear that the coronavirus (COVID-19) pandemic is reshaping the global indirect tax landscape. The most notable shifts include numerous rate changes and greatly accelerated tax policy decision-making by governments and their tax authorities.
During the first two months of 2020, most rate changes were adopted in the digital realm: countries continued to roll out measures for e-commerce transactions, with a focus on marketplaces. In addition, a handful of countries decided to join the movement to adopt reduced indirect tax rates for electronic publications, while others conducted budget discussions.
An abrupt shift occurred in early March as the first wave of tax shifts rolled out in response to COVID-19’s economic damage. Countries worldwide temporarily decreased indirect tax rates for essential goods aiming at preventing and controlling the COVID-19 pandemic. More than 40 countries implemented relief measures for the import of essential medical items such as oxygen delivery and COVID testing equipment. Twenty-five countries adopted reduced rates or exemptions for domestic supplies of personal protective equipment (PPE) and sanitary items; approximately 20 countries have done the same for domestic supplies of essential medical equipment.
Some countries took it one step further by decreasing the indirect tax rates for materials and equipment necessary to set up COVID-19 testing facilities or emergency hospitals. In a handful of countries, we saw targeted rate decreases for services aiding and supporting disabled persons, elderly or chronically ill people, such as personal care services or translating services for the hearing impaired. A small number of countries also lowered indirect tax rates for basic food items and utilities such as water and electricity.
A second wave of tax measures began materialising in mid-May. Countries that had flattened the infection curve pivoted toward temporary support initiatives to mitigate the economic consequences of the pandemic. Although these measures are country-specific and depend on which industries were most affected by the COVID-19 crisis, they tended to focus on the tourism, hospitality, restaurant, transportation and cultural sectors.
During both waves of tax relief measures, some countries (Costa Rica, Mexico, Norway and the UK) implemented or considered a temporary decrease of the standard or reduced indirect tax rates and are even extending the terms of the temporary decreases. Jamaica and Kenya will decrease the standard rate permanently. Saudi Arabia, in an effort to make up for lost revenue, adopted a different approach—tripling the standard indirect tax rate with just a bit more than a two-week notice.
Another new trend we’re seeing is the quick adoption of new tax rates. Countries that normally struggle to reach consensus are adopting measures over weekends. We’ve seen a zero-rate for e-publications accelerated by six months in the UK and Belgium’s highly debated reduced rate for non-alcoholic beverages served in restaurants gain approval without any opposition.
As decision-making processes accelerate, companies operating in these countries must be prepared for a prompt response. Vertex continues to support companies around the globe by increasing the number of data updates to enable our customers with access to more accurate and updated indirect tax content during this challenging situation.
As many countries continue to battle COVID-19 outbreaks, it will be interesting to see where the tax-policy focus shifts to in the second half of the year. We expect to see more country-specific support measures, although which of those measures may include indirect tax elements remains unknown. Stay tuned as we keep you up to date on the latest global tax trends.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.