Countries advised to change tax systems amid COVID uncertainty

Kampala, Uganda | THE INDEPENDENT | In the wake of the unprecedented COVID-19 crisis, tax systems should be reformed and tax avoidance and evasion reduced to ensure an economic recovery in which everyone pays their share, the International Monetary Fund (IMF) has said.

Taxes pay for many of the things that are fundamental to the functioning societies across the world such as schools, health care and social services. Money raised through taxation is crucial to ensuring that these services are maintained during the COVID-19 crisis. But when businesses shut down and millions lose their jobs as has happened during the current crisis, tax revenue plummets.

IMF Deputy Director, Fiscal Affairs Department, Victoria Perry says that the IMF has made emergency COVID-19 funding available particularly to those countries with developing economies. This includes   some USD 250 billion issued in the form of financial assistance and debt service relief to some 77 member countries as a short term measure in response to the pandemic.

Uganda for instance received USD 491.5 million (1.9 trillion Shillings) in emergency funding to address the impact left by the coronavirus on the economy. The money was approved under the Rapid Credit Facility program that is meant to help poor countries pick up pieces after being battered by the virus.

Many other governments are using this funding to offer stimulus packages and a wide array of measures to help businesses and citizens get back on their feet.

However, Perry an expert on taxation says that the stop-gap measures will not be enough to fix many of the underlying problems of the global economy which include growing inequality within countries and the ability of multinational enterprises to legally minimise corporate taxes. For her, this is an opportunity to change tax systems for the better.

She says that in planning the post-pandemic recovery, countries should look at dealing with inequality by implementing more progressive tax systems. “This means that the average tax rate rises along with income. The extent of the tax burden for richer people is for each country to decide, but it is certainly problematic when effective tax rates for better-off people are lower than for poorer ones.”

Perry adds that another option for some developing countries which have trouble raising and enforcing a personal income tax is to look at taxing property: “whilst income is relatively easy to hide, luxury homes are very visible, and a tax-free threshold means that owners of cheaper homes can be exempt or relieved from paying it”.

Victoria Perry explained in an interview with the United Nations on Sunday that planning the post-pandemic recovery, countries should look at dealing with inequality by implementing more progressive tax systems:

“We are going through this huge economic crisis and countries are having to make major adjustments to their economies. But inequality is also a kind of huge global problem in itself. This is also then an opportunity to change tax systems for the better, to make them fairer and more equitable, and to promote economic activity that is less polluting, less dominated by industry with a large carbon footprint, and more sustainable.”

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