Because digital services taxes and other new measures may not provide sufficient liquidity, countries should consider raising corporation taxes to increase revenue during the pandemic recovery, according to a panelist at a virtual tax conference.
There is uncertainty surrounding how countries are going to deal with the recovery phase of the COVID-19 pandemic, said Ruud de Mooij, division chief of the tax policy division in the IMF’s Fiscal Affairs Department, during a panel on tax policy for recovery at the Mannheim Taxation Conference September 10. He said the pandemic is a “transformational crisis” and that it is important to consider how policies can affect the transformation in a way that is desirable.
De Mooij noted that current debt is at unprecedented levels and that tax policies are going to be very important in future years. Dhammika Dharmapala, professor of law at the University of Chicago Law School, said there is a need for new sources of revenue in the recovery phase.
Michael Devereux, director of the Oxford University Centre for Business Taxation, said the amount of revenue that the U.K. government will receive from its DST is less than 1 percent of what it collects from its corporation tax. “The government could easily raise more money by increasing the rate of corporation tax by 1 percentage point,” he said. Devereux said governments may see the pandemic as an opportunity to implement “fancy taxes,” like an excess profits tax in the United States and a DST in other countries, but he advised against it because these taxes do not raise as much revenue as corporate taxes.
The U.K. Finance Bill 2020 received royal assent July 22, becoming an act of Parliament. The law provides for a 2 percent tax on the U.K. revenues of large corporate groups offering social media services, search engines, or online marketplaces. The new tax, which has retroactive effect from April 1, applies to groups with annual consolidated worldwide digital services revenue exceeding £500 million and U.K. digital services revenue exceeding £25 million.
De Mooij said countries could raise additional revenue by addressing the climate crisis. He said the average carbon price is approximately $2 per ton, but to meet the Paris climate agreement's warming limit, that price needs to reach $75 per ton, which would be a significant challenge. De Mooij also warned that while taxes on the wealthy may be “the theoretical ideal” that many economists favor, the “conditions surrounding a wealth tax are hard to fulfill.”