By Amit Ummat

Special to the Financial Independence Hub

We’re all talking about how the world will change because of COVID-19 and are already seeing things like more cooking and less takeout, lower profits for more stability, and electronic voting. But what about taxes and tax policy? The global economy is undergoing drastic change, but what will be the repercussions of these changes for tax authorities? We can expect three things: more state involvement, reduced globalization, and universal basic income. Let’s have a look at each of them.

1.) More State Involvement

Governments will be more involved in the economies of their nations and this is where new approaches to tax policy come into play. National governments will no longer tolerate tax minimization by large corporations (including airlines) and then acquiesce to requests for taxpayer-funded bailouts.

Denmark and Poland recently made it policy to exclude tax-haven companies from COVID-19 relief schemes. So, if a corporation fails to pay its fair share of tax and thereby fails to finance public goods and services, it cannot expect state-sponsored loans or wage-subsidy programs. The government of Denmark said companies which pay out dividends, buy back their own shares, or register in offshore tax jurisdictions, will not be eligible for aid programs from the state.

Expect more of this. It means income inequality will be tolerated much less by governments and society, prompting action by tax authorities to ensure that all taxpayers pay their fair share. This is already happening.

We hear echoes from every corner of the world that the share of revenues going to labour and producers are grossly out of whack. In 1960 labour expenses were roughly equal to profits, but now there is incredible disparity with the lion’s share of revenues going to capital owners and only a small fraction going to labour, and that fraction hasn’t even kept pace with inflation.

Don’t expect a Marxist-type revolution where the means of production are usurped by the working class, but there will be an expectation for income allocation to be more equalized between capital and labour.

2.) Reduced Globalization and Stronger Domestic Supply Chains

With this pandemic we have seen what happens when nations aren’t able to control supply chains for essential goods (i.e., ventilators and other PPE). The United States is a perfect example. Globally, we will see supply chains repatriated by nations, and technology allowing for this through AI (Artificial Intelligence), portable manufacturing equipment, and more accessible communications. This will make it easier to impose tax on corporations since much of the activity will take place in a single geographic jurisdiction.

While globalization has produced a myriad of benefits, including a huge reduction of poverty in the world, it’s no coincidence that the growth of the globalized economy has spawned incredible growth to the middle class, such as in China and India. But this has also led to the loss of manufacturing jobs in Western countries. One can argue that globalization is why Western nations have become almost entirely service-based. Continue Reading…