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Introduction
Covid-19 has contaminated millions and has destroyed almost half a million lives. The abrupt stops in economic activity and jobs are on record, in depth and pace, for worse than anything. Drastic but very important steps to protect people’s health and cross-border delivery in the supply chains, tourism, remittances are harming the economies of developing countries. In the economic downturns, the poorest and most disadvantaged parts of the population are generally impacted in proportion.[1] It worsened during the current recession because there were fewer opportunities for the poor section of society to protect their health and suffer more from shortages in the public services. Recovery won’t be fast and the future will vary from the reality of just a few months ago in important ways. In times of distress people look for information, guidance and protection from government.[2]
Tax is hit hard by the pandemic. Covid-19 will alter taxation in at least three important ways, with lasting consequences. First and foremost, taxation plays a role in helping to preserve universal access to basic goods and services by “lifeline” steps at this present stage of the crisis. The vulnerability to Covid-19 and its economic impact among social groups are very different. Taxation will help mitigate this unequal field of play-that’s an important reason for progressive taxation. In the same spirit, aggressive tax minimization by large taxpayers will become even more intolerable to society at large, however legal it may appear.[3] This raises the significance of the work on international corporate taxation now being carried out within the Inclusive Framework and the UN Tax Committee, and its focus. Similar to other nations, India’s government has begun work on an economic package to counter the pandemic’s effects. Realizing the difficulties facing its citizens, The Ministry of Finance and Corporate Affairs of the India has announced several significant tax and regulatory relief initiatives.
To understand the implications of the taxation policies of the Government of India in the Covid-19 pandemic, the article is divided into two parts. The first part of the article will look into the measures prescribed by Organization for Economic Co-operation and Development (OECD) and the article will finally culminate into critical analysis of the taxation policies taken up by the Indian Government and its bodies.
OECD guidance on tax impact due to COVID19 crisis
The COVID-19 pandemic has forced governments to take exceptional measures, such as mandatory lockdowns and travel restrictions. This unprecedented situation raises important tax issues, especially where cross-border elements are present in the equation. Individuals were required to live in a country where they do not usually reside for a long time, thus activating restrictions on residency in that country.[4] Most cross-border employees in their country of employment are unable to physically perform their tasks, and may choose to sit at home and telework. In this context, the Organization for Economic Co-operation and Development (“OECD”) has sprung into action to make a compilation of (i) steps envisaged by tax authorities; (ii) limitations on these measures (iii) guidelines to tackle the effect of travel limitations under tax treaties and potential tax exposures that occur inadvertently and temporarily and (iv) advice on ‘good to have’ activities for business continuity.[5]
· Extension of the time limits for filing tax forms and paying tax
For several countries the outbreak of COVID-19 occurred at a period when usually income tax returns are filed and payments are due.[6] By several weeks or months, the OECD has proposed extending such deadlines to provide more time by individuals and companies impacted by COVID-19 to file their tax returns and related forms and to make tax payments.
- Steps taken to hand down penalties and privileges
Tax administrations may consider suspending penalties or interest where applicable, particularly if extensions of time limits are given. The OECD also recommends that attention be given to deferment of fines and benefits that have been levied but have yet to be compensated.
- Steps surrounding deferment of tax payments, e.g. withholding taxes, installments
The OECD recognized the fact that the COVID-19 outbreak had an unparalleled effect on many individuals and businesses’ cash-flow situation. These cash flow issues can cause a domino effect to fail not only one company but also related businesses.[7]The OECD has suggested that tax administrations consider assisting taxpayers and relieving their cash flow pressures by postponing due tax payments, accepting tax payments in increments (e.g., quarterly or six months) or downward revisions to advance tax payments (or even halting these payments) even when revenues are anticipated throughout the fiscal year.
- Easier access to debt reduction plans and extended plan life
Taxpayers have the right in certain countries to join ‘debt payment programs,’ which could be subject to some conditions. Such debt payment plans could be through either an automatic process, or through discussions with tax authorities.[8]In these situations, the OECD has recommended that tax authorities consider facilitating access to all payment systems and extending the length of the program, including providing an interest-free period, particularly where there is a risk of hardship or significant cash flow issues.
- Steps for Suspension of Debt Recovery as according to OECD
The OECD has proposed that tax administrations consider halting debt recovery, including halting the garnishing of wages or bank accounts and seizures of properties and sales, as these have a serious effect on taxpayers especially in the current circumstances.[9]
- OECD’s views on Quicker refunds to taxpayers
In order to address possible cash flow problems that could be faced by taxpayers, the OECD proposes that reimbursement procedures owed to taxpayers should be prioritized to ensure that money is paid out efficiently, and also to ease risk assessments conducted until reimbursements are given to allow for quicker processing.[10]
- Steps taken by OECD for temporary audit procedure changes and ways to have quicker tax certainty
The OECD has found out that tax audits (i.e. tax return review, etc.) may be a highly resource-intensive method for taxpayers as well as tax administrations, and can also include transmission risks for taxpayers and tax administration personnel. It suggests a temporary change to the auditing policy, particularly for large taxpayers needing more time and resources.[11]OECD, among others, has suggested achieving this either by adopting a blanket policy or by changing the risk parameters.
- Enhanced taxpayer services and communication initiatives
The OECD has urged global tax authorities to minimize physical interaction and increase digital connectivity to counter the current pandemic. Some of the suggested steps include the creation of dedicated web sites, advertising campaigns, hotlines, mobile apps, etc.This is also proposed that alternate means of communication such as mobile, fax etc. will be used to communicate with taxpayers who are technologically disabled.
The OECD Guidance may be of authoritative value while interpreting DTAAs. When it comes to interpretation of domestic laws, although the OECD Guidance is not binding on Indian tax authorities, it is of strong persuasive value and will likely influence the stance eventually taken by Indian tax authorities.[12]
Tax Implications of Covid-19 for India
COVID-19’s outbreak worldwide has been unprecedented, with major economies announcing bailout packages, regulatory relaxation during lockdowns. The Finance Minister subsequently announced on March 24 2020 some relief steps relating to the Code of Taxation, Corporate Affairs, Insolvency and Bankruptcy (IBC), the Fisheries, Financial Services and the Commerce Sector.Indeed, India made two major changes to its fiscal legislation in 2020. First, Section 194-O was added to the Income-Tax Act, 1961[13] in India, with the intent to enhance tax reporting by companies that sell via online platforms.According to this section, an online platform is now required to deduct tax at a rate of 1 per cent from payments made to a resident e-commerce participant. Second, a non-resident business has expanded the scope of the 6 per cent equalization levy to online advertising.
Updated Regulations in the Income Tax genre due to Covid-19
On March 31 2020 the Government passed an Ordinance extending different time limits under the Taxation and Benami Property Acts. This further allows for the extension of the time limits set out in the Rules or Notices prescribed or issued under these Acts.The last filing date for both initial and amended income tax returns for the 2018-19 financial year has been extended from March 31, 2020 to June 30, 2020.[14] Similarly, by March 31 2020, the mandatory requirement to connect Aadhaar number to PAN (Permanent Account Number) has been extended until June 30 2020.The time limits for the completion of the proceedings, the passage of an order, and the issuance of a notice by an authority, etc., and the filing of any appeal, reaction or request or evidence, the filing of returns, etc., have also been extended to June 30, 2020.For delayed payments of advanced tax, self-assessment tax, regular tax, TDS, TCS, equalization levy, STT, CTT made between March 20 2020 and June 30 2020, interest rate will be charged for this period at 9 per cent instead of 12 per cent or 18 per cent per annum (i.e. 0.75 per cent per month instead of 1 or 1.5 per cent per month).[15]
Furthermore, no penalty or conviction would be levied on taxpayers for the delay in these payments. The “Vivad se Vishwas” Scheme, is a settlement scheme for tax disputes between individuals and the tax department. It offers a waiver of interest and penalty to complete and final settlement taxpayers have been given an extended payment date (without extra charges of up to 10%) to be made by March 31 2020 otherwise. If payments are made by June 30, 2020, no further 10 per cent will be needed to be paid.The timeline for an investment to claim deduction under ITA Chapter VI-B that includes insurance premium payments, public provident fund, medication, donations, etc.[16] has also been extended for claiming a deduction for FY 2019-20 to June 30, 2020.
Similarly, the period for making investments / buying / building residential property to claim deduction in respect of capital gains under ITA Sections 54[17] to 54 GB is also extended for claiming deduction for FY 2019-20 until June 30, 2020.In addition, the Central Board of Direct Taxes (CBDT) released an order pursuant to section 119 of the ITA[18] concerning the issuance of certificates for lower rate / nil deduction / tax collection at source (TDS / TCS). The Indian tax department has extended the validity of all smaller / nil withholding tax certificates issued for the financial year ended March 31, 2020 until June 30, 2020 in cases where applications are either pending with the department or not filed due to the COVID-19 situation.
Ease in GST compliances in light of COVID-19 pandemic
The COVID-19 pandemic is hitting businesses nationwide. In light of this, Finance Minister Nirmala Sitharaman announced a slew of measures to alleviate the burden of GST compliance on companies.An Ordinance was passed to incorporate a new provision under the CGST Act which, on the advice of the GST Council, extends powers to the Central Government to issue notifications extending the time limit of the completion of GST protocols which cannot be completed due to situations such as conflict, disease, flooding, drought, etc[19].
The Central Government has allowed certain relaxations in the field of Relaxation in GST compliance requirements. Taxpayers will be able to file their GST returns for February, March and April 2020 with no interest, late fees and penalties until June 30 2020.In the case of firms with an annual turnover of more than INR 50 million, however, interest would be charged at a reduced rate of 9 per cent p.a. (As against the real interest rate of 18% p.a.), if the payment of the tax is postponed by more than 15 days, from the due dates currently applicable.The amount due date under the “Sabka Vishwas” (Legacy Dispute Resolution) Scheme, 2019, was extended to June 30 2020.
Furthermore, no interest for this extended period would be charged, provided that the payment is made by June 30 2020.It is suggested that the customs clearance operation should be included in the list of ‘essential services‘ and that customs clearance of imported products should take place 24X7 till June 30 2020.The deadline for notice, notice, approval order, sanction order, filing of appeals, filing of applications, records, all other papers, etc., the deadline for any enforcement under the Customs Act and other relevant laws where the deadline expires between March 20 2020 and June 29 2020 is extended to June 30 2020.[20]
Tax Implications and Regulations relating to the matters of Corporate Affairs
A moratorium on the various filings to be made with the MCA-21 registry will be released from April 1 2020 to September 30 2020. Late filings do not incur any extra fees.The late fees is required to be deposited in the MCA-21 Registry under the heading of in respect of any text,tax return, declaration, etc., and its due date will not be taken into consideration.This will not only reduce the compliance burden, including the financial burden of companies/LLPs as a whole, but also encourage long-standing non-compliant companies/LLPs to make a ‘fresh start’.[21]The obligation to hold a Board meeting during the 120-day period imposed by the Companies Act, 2013, is relaxed by an additional 60 days before the next two years, i.e. up to September 30 2020.Companies Applicability (Auditor’s Report) Order, 2020 will be made effective from the 2020-2021 financial year instead of from 2019-2020 as previously notified by the Government. It will significantly ease the pressure for the year 2019-20 on corporations & their auditors.Under Schedule 4 of the Companies Act, 2013[22], Independent Directors shall have at least one meeting without the participation of Non-Independent Directors and Management Representatives. Unless a company’s Independent Directors is unable to hold only one meeting for the year 2019-20, the same shall not be seen as non compliance. .Newly incorporated companies are expected to file a company start-up report within sixmonths of incorporation. There will be an additional six -month period to file this declaration[23]. The requirement for directors to live in India is also relaxed, as a company director, who has not lived in India for more than 182 days, it will not be considered a violation, contrary to the existing law..
Tax Implications in the field of Insolvency and Bankruptcy Code
Because of the emerging financial distress faced by most companies because of the vasteconomic distress caused by COVID 19, it was decided to raise the default threshold under section 4 of the Insolvency and Bankruptcy Code[24], 2016 to INR 10 million from the existing INR 100 thousand threshold. This will prevent insolvency proceedings against Medium and Small Scale Enterprises (MSMEs) by and wide from being triggered. The Ministry considered suspending, for six months, the filing of an insolvency application by a financial creditor, operational creditor and/or a corporate debtor himself (under Sections 7, 9 or 10 of the Insolvency and Bankruptcy Code). It is known to keep businesses from being pulled into the cycle of insolvency resolution.[25]
Conclusion
The current crisis of Covid-19 pandemic is a global challenge which calls for a global response. Global tax cooperation needs to be part of a package of successful and well-coordinated multilateral measures to resolve the crisis. To expand the fiscal space, working together to combat tax evasion and tax avoidance, including illicit financial flows, is need of the hour. At the same time, moving towards afair and more equal taxation of economic activities on a global level has never been more relevant.The emergence of the global COVID-19 pandemic, providing regulatory relief and legislative relief will certainly help taxpayers survive these extraordinary times.[26] Though it could take some time for the economy to show signs of recovery, the Indian Government is expected to bring back normalcy in the country with another series of the required economic initiatives.
[1] Joe Hargrove, Covid-19: Insights on Tax Impact, KPMG TAX (July 21st, 2020, 11.40PM), https://tax.kpmg.us/insights/covid19-tax-impacts.html.
[2] Anjana Haines, Managing the tax impact of the Coronavirus, ITR (July 20th, 2020, 2.38PM), https://www.internationaltaxreview.com/article/b1ktnt1zch6vkg/itrs-covid-19-hub-managing-the-tax-impact-of-the-coronavirus.
[3] Kavaljit Singh, It’s Time for a Solidarity Tax, THE WIRE (July 22nd, 2020, 3.40PM), https://thewire.in/government/coronavirus-solidarity-tax-wealthy.
[4] Daksha Baxi and Surajkumar Shetty, Indian Tax Measyres to counter Covid-19 Impact: How do they compare with OECD’s suggestions, A CYRIL AMARCHAND MANGALDAS BLOG (July 20th, 2020, 1.58PM), https://tax.cyrilamarchandblogs.com/2020/04/indian-tax-measures-to-counter-covid-19-impact-how-do-they-compare-with-oecds-suggestions/.
[5] Angel Gurria, Tackling coronavirus (COVID‑19) Contributing to a global effort, OECD (July 22nd, 2020, 7.34AM), https://www.oecd.org/coronavirus/en/.
[6] Julie Masson, OECD issues coronavirus enforcement guidance, GCR (July 21st, 2020, 12.30PM), https://globalcompetitionreview.com/article/1227545/oecd-issues-coronavirus-enforcement-guidance.
[7] Daksha Baxi and Surajkumar Shetty, Indian Tax Measyres to counter Covid-19 Impact: How do they compare with OECD’s suggestions, A CYRIL AMARCHAND MANGALDAS BLOG (July 20th, 2020, 1.58PM), https://tax.cyrilamarchandblogs.com/2020/04/indian-tax-measures-to-counter-covid-19-impact-how-do-they-compare-with-oecds-suggestions/.
[8] Rohit Nautiyal, Covid-19: Direct Tax Implications, GRANT THORTON (July 20th, 2020, 2.12AM), https://www.grantthornton.in/insights/articles/covid-19-direct-tax-implications/.
[9] Angel Gurria, Tackling coronavirus (COVID‑19) Contributing to a global effort, OECD (July 22nd, 2020, 7.34AM), https://www.oecd.org/coronavirus/en/.
[10] Cpi, OECD Published COVID-19 Enforcement Guidance, COMPETITION POLICY INTERNATIONAL (July 23rd, 2020, 5.34PM), https://www.competitionpolicyinternational.com/oecd-published-covid-19-enforcement-guidance/.
[11]Ibid.
[12] Julie Masson, OECD issues coronavirus enforcement guidance, GCR (July 21st, 2020, 12.30PM), https://globalcompetitionreview.com/article/1227545/oecd-issues-coronavirus-enforcement-guidance.
[13] Income Tax Act 1961 § 194-O.
[14] Suranjali Tandon, Insight: Direct Tax Implications of Covid-19 for India, BLOOMBERG TAX (July 21st, 2020, 8.45PM), https://news.bloombergtax.com/daily-tax-report-international/insight-direct-tax-implications-of-covid-19-for-india.
[15] Victor Gaspar, Facing the Crisis: The role of tax in dealing with Covid-19, INTERNATIONAL MONETARY FUND (July 21st, 2020, 7.20PM), https://www.imf.org/en/News/Articles/2020/06/16/vc-facing-the-crisis-the-role-of-tax-in-dealing-with-covid-19.
[16] Rahul Oza, Impact of Corona virus threat and restrictions on Indian companies: legal and Regulatory Changes, RODL & PARTNER (July 22nd, 2020, 4.30PM), https://www.roedl.com/insights/covid-19/impact-coronavirus-threat-restrictions-indian-companies-legal-regulatory-changes#1.
[17] Income Tax Act 1961 § 54.
[18] Income Tax Act 1961 § 119.
[19] Dharm Veer Singh Khrisnawat, Income Tax and Regulatory Relaxations-Covid-19 Outbreak, NEXDIGM (July 20th, 2020, 9.10PM), https://www.skpgroup.com/data/mailer/Nexdigm_SKP_Tax_Alert-26-03-2020.html?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration.
[20] Rahul Oza, Impact of Corona virus threat and restrictions on Indian companies: legal and Regulatory Changes, RODL & PARTNER (July 22nd, 2020, 4.30PM), https://www.roedl.com/insights/covid-19/impact-coronavirus-threat-restrictions-indian-companies-legal-regulatory-changes#1.
[21] Tushar Kanti Saha, Covid-19-Measures announced by Finance Minister to address disruption caused by the pandemic, TRILEGAL (July 22nd, 2020, 5.30AM), https://www.trilegal.com/index.php/publications/update/covid-19-measures-announced-by-finance-minister-to-address-disruption-cause.
[22] Companies Act 2013 § 4.
[23] Ergo, OECD guideline on tax impact due to Covid-19 crisis, KHAITAN & CO (July 22nd, 2020, 7.35PM), https://www.khaitanco.com/covid-19/OECD-guidance-on-tax-impact-due-to-COVID19-crisis.
[24] Insolvency and Bankruptcy Code 2016 § 4.
[25] Insolvency and Bankruptcy Code 2016 § 7.
[26] Victor Gaspar, Facing the Crisis: The role of tax in dealing with Covid-19, INTERNATIONAL MONETARY FUND (July 21st, 2020, 7.20PM), https://www.imf.org/en/News/Articles/2020/06/16/vc-facing-the-crisis-the-role-of-tax-in-dealing-with-covid-19.
