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COVID 19: Impact on economy and international tax

COVID 19: Impact on economy and international tax

The Covid-19 pandemic seemed like a historic turning point like World Wars I and II and the Great Depression. It has spread with great speed, infecting millions of people and bringing economic activity to a near standstill as countries had to impose restrictions/lockdowns to prevent the spread of the virus. With multiple waves, the virus is continuing to disrupt economic activity and negatively impacting businesses in some countries. Most businesses had to run business contingency planning to ensure their operations continue.

Though it has affected various sectors, however, the economic impact differs across different sectors. Some sectors are experiencing limited effects while, in contrast, others are experiencing significant adverse effects, including sustained losses. It can be expected that financial markets will continue to be volatile, and some sectors will likely recoup faster than others. While there are some signs of recovery in some countries, the pandemic’s impact is to stay, and it will take some time for businesses to revive completely.

From the policy perspective, the crucial issue in the aftermath of the 2020 crisis will be how countries can raise finance and revenue, incentivize industrial development and achieve further economic growth. The tax has a crucial role in public policy as a source of revenue collection, which will be taken into account for reviving the economy. A lot of policy questions lies ahead of the government. On the other hand, as a short-term measure to help individuals/ businesses deal with the impact of the Covid-19, countries are using tax systems to ease the impacts of the crisis2. In the international tax context, a lot of issues did arise during the pandemic times, some of which are to stay in coming times too.

In light of the above background, the paper provides a brief background on some of the issues that have arisen because of Covid-19. Thereafter, it discusses some of the OECD guidelines (in the taxation area) issued from time to time to address the open questions. It then explores some of these issues in greater detail and briefly discusses the impact of Covid-19 on technology in the tax arena. It further discusses about the impact of Covid-19 on the Indian economy and some of the circulars issued by the Indian government to handle the international tax challenges. The paper also briefly presents the concept of autonomous organization and how algorithm-based decision-making and the concept of smart working (the practice of which seems to rise in post covid too) stating that these will impact the residential status of companies/ individuals in coming times.

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