The Coronavirus Covid-19 is creating economic disruption of which the impact is expected to be durable even in the second half of the year. After the 2008 recession, this virus has been declared as the greatest danger leading to a global recession.
Although the expected highest impact is on the tourism sector, other sectors such as commodities and supply chain are also expected to be highly effected. Considering that Malta`s economy is highly dependent on tourism, Malta may be at a higher risk if businesses are either stuck without merchandise or due to the interruption of flights to or from Malta.
The OECD has just issued a report that the global economy growth is expected to fall to 2.4% in 2019 compared to 3.3% in 2021. The economic growth in China was of 6.1% in 2019 and it is expected to go down to just 5% this year. In order to mitigate this impact, Governments need to assist households and businesses who are the most at risk of bankruptcy or financial difficulties. It is also being expected that Governments would introduce tax cuts or at least temporary tax measures to the highly directly impacted sectors.
It is being argued that the airlines have been hit hard by the cancellation of flights, closed airports and lack of bookings. Subsequent to these events, the CEO of Air France-KLM has proposed that the implementation of the green tax levy should be postponed due to the negative impact from Coronavirus on the airline industry. France had announced that a green tax was to be introduced in 2020 on all outgoing flights from the country as part of the fight against environmental pollution. The addition of a new tax would be a huge burden, which airline companies cannot financially sustain at present.
On the other hand, opposition leader Simon Bridges in the New Zealand is promising tax cuts if he will be elected in Government. Bridges claimed that the global economy might go into recession the longer countries remain unstable. The impact on businesses is expected to be huge therefore such incentives would relieve some of this economic impact.
As an immediate response to the current issues being faced both from an import and export point of view, the Government in New Zealand has already announced a contribution of $4 million in support of struggling companies. Similarly, Italy will be injecting EUR 3.6 billion into its economy in view of the fact that Italy has been the most highly infected country in Europe with this virus. The Italian Government will also be introducing tax credits to companies which will experience a 25% decrease in revenues during the year.
Likewise, India has requested for the suspension of import duty on antibiotic drugs, mobile parts and other instruments needed to contain the virus. It has been argued that the halt of supply of items to China, which is their biggest source of wealth for exports, hinders their economic cycle.
The US is also prepared to implement tax cuts through relief from tax in order to stimulate and stabilize the economy in case the Coronavirus would hugely impact the US economy. It is expected that the tax cuts would be mostly aimed at start-ups and to the middle-class bracket.
Similar incentives and tax credits are expected to be implemented worldwide in order to mitigate the impact on households and businesses. It is still early to quantify the economic impact this virus will have on each and every country. From a Maltese perspective, no tax incentives have yet been launched since we are not yet directly impacted by the virus. Nevertheless, one also needs to consider the indirect impact that this will have on local businesses.
For further information on this article, please contact Stephen Balzan on [email protected] or Shanice Finch on [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.