The word ‘unprecedented’ is used to describe the impact of Covid-19 because we are in a situation we have never experienced before.
Speculation notwithstanding, organisations and institutions just don’t what the post-pandemic world will look like. The virus is playing out differently from sector to sector and country to country.
The common denominator however is that governments are under pressure to raise revenue.
Tax practitioners therefore had much to speak about on Thursday during a Graphene Economics webinar on the impact of the crisis on the taxation landscape.
South African Institute of Tax Professionals CEO Keith Engel expects Covid-19 to affect tax policies in Africa in two ways, as a result of what he refers to as the ‘shock wave’ and the ‘post-period’.
Engel explains that this phase includes what most governments are currently doing to ensure that they save businesses from closing their doors and letting staff go.
“During the shock phase, the government is doing what it can to save the economy. They are giving whatever incentive they can [provide] and are talking about subsidies – but there is only so much money.”
Engel says that during this phase the “smarter” countries are talking about liquidity and the “less smart ones” are talking about providing tax relief and incentives.
He says the problem with the latter is that as a government’s funds get depleted, it will wake up to realise that it has a problem. He cites as examples previous global crises that left governments indebted.
“After every crisis governments are becoming more indebted. So we see two things going on. One is: can we grow our way out of it?
“If that happens, that’s wonderful because all go forward. But if we grow our way out of it and that growth is not enough to cover that extended debt, then we have a problem.”
He says this would mean that revenue services would have no other choice but to “aggressively” push up taxes. “Treasury will have unrealistic targets under revenue services – that is the history of Treasury.
“You will definitely see that revenue services will be pushing aggression because they simply have no choice,” says Engel.
Sébastien Gonnet, director of international financial advisory firm Accuracy and founder of Transfer Pricing Economists for Development, adds that companies are also in the shock phase to protect employees and cut costs.
“Soon there will come the difficult decisions to be made,” he says, adding that companies will have their backs to the wall and that restructuring will take place.
Preparing for the post-pandemic period
Gonnet’s advice is for the accounting departments to document everything that happens during this period.
Businesses won’t be able to make decisions that are sound and commercially reasonable for another three years or so, he says, because those decisions need to be based on what happens – and the documentation that is collected – now.
Engel adds that the documentation is important for “justification” purposes and may be important for timeliness in that it will allow companies to make decisions, based on limited information, but with ‘at this time’ and ‘for this reason’ reasoning “because you have to act quickly, and act in the group’s interest”.
Gonnet says 2020 is not a definite year in the tax world because announcements are still being made and decisions and markets are still being studied.
What Gonnet would like to see from authorities globally, as companies navigate these uncharted waters, is more circulars educating them on what it is they are expected to do.
“It is not out of reach,” he says. “Certain tax authorities have provided companies with information of things that they will be expecting from certain companies and from my understanding this has been welcomed, because you have a better understanding of what to expect from the other side.”