COVID-19: Are more measures needed to ease the tax burden?

The Government could temporarily relax the measures incorporated in the tax legislation in the last reforms.

Deductions for cash payments may be limited, invoices and equivalent documents may be required as support for deductions in some sectors.

COVID-19 has caused legal entities to ask themselves on a daily basis what they must do to stay afloat, which is why they ask the national government for deadlines to pay their debts, credits and economic injection to produce and thus avoid having to lay off employees.

The tax issue is also something that turns their heads, so the question arises, “What measures may be needed to alleviate the tax burden, especially for companies?”

David Riascos Vargas, director of Tax, Exchange and Customs Law at MRG Legal, indicates that today there are two elements that businessmen are analyzing and that have a particular impact on the maintenance and generation of employment.

“The first is the rethinking of business models in elements such as income generation, distribution channels and, in some cases, the value proposition. The second is the liquidity and cash availability of the entity,” he explains.

The two elements, from his point of view, could be evaluated by the national government from a tax perspective, in order to generate policies to increase the options for entrepreneurs when making decisions.

“Of course, we must not lose sight of the fact that tax collection cannot be affected and cause a greater impact on the fiscal rule,” he points out.

“Government could temporarily relax several measures that have been incorporated in the tax legislation in the last reforms.”

Regarding the rethinking of business models, Riascos states that the Government could temporarily relax several measures that have been incorporated in the tax legislation in the last reforms, such as the limitation to deductions for cash payments, the requirement of invoices and equivalent documents as support for deductions in some sectors, VAT withholding on payments abroad for expenses necessary for the virtual operation (different from cloud computing services that are excluded), among others.

Implementation of more strategies

From their point of view, and facing issues related to liquidity and cash availability, the national government could study and implement strategies such as:

–Reducing, on a temporary basis, withholding tax rates on economic activities that have been affected by the pandemic, as in the case of professional fees and services, and those practiced by withholding agents of the financial system.

–Incentivizethe repatriation of cash from abroad by Colombian companies and individuals, generating exemptions or differential income tax rates when profits are distributed and income and dividends are obtained abroad and effectively transferred to Colombia for permanence and investment.

–Likewise, the Government could take advantage of the tax normalization and grant a greater prerogative when cash is normalized and repatriated with a vocation of permanence and investment in the country.

– Taxincentives forvarious leverage alternatives, such as factoring, for example; including extending the maximum payment term of two months for withholdings at source to some taxpayers with differential interest on arrears, according to their level of compliance and risk.

– The decapitalization of companiescouldbe prevented, for which the reduction of the dividend tax rate applicable to profits obtained during the last 3 years could be useful, with the commitment to maintain the investment during the time necessary to overcome the crisis, which should be determined by the Government.

Source: Actualícese