According to the International Monetary Fund, the world is now approaching its worst recession since the Great Depression.
Despite what first emerged as a nice global break that lasted two months, allowing planet Earth to breathe again and curbed pollution in the world’s industrial cities, the world is now nearing a breaking point, as we start to feel the severe economic impact of the coronavirus lockdown.
The production wheel is slowly running again as most countries ease closures in the aftermath of COVID-19, yet the economy is still far from recovered.
Suffering from huge budget deficits, governments are turning to impose higher taxes, in an attempt to make up for the losses resulting from crashing markets since March.
Saudi Arabia, for example, has tripled its VAT from 5% to a whopping 15% starting next July. Similarly, the Tunisian government is reportedly studying a new set of taxes that are supposed to support the government following the Coronavirus pandemic.
Turkey is also increasing taxes on foreign currency and gold purchases from 10% to 15%. Additional taxes on sales of digital products and services are reported from Indonesia starting next July. But is this the right way to make up for the COVID-19 economic meltdown?
While governments are overwhelmed with financial burdens trying to balance supporting their healthcare systems and everyday needs in their countries, taxing products and services might end up hindering governments’ efforts to re-boost economic activity, especially that millions of people have either lost their jobs or had to agree to wages lower than what they made before the crisis.
Around the globe, hundreds of thousands of households, if not millions, are now starting to cut down on their expenses as much as they can to ensure that they survive the economic crisis. This means that many businesses that offer unessential products or services should expect a long-term decline in both activity and revenue. Consequently, imposing higher VATs will only hit these businesses stronger.
Weighing their options to face the 2020 financial crisis, governments should reconsider introducing such taxes, often described as regressive as they target all consumers regardless of their financial abilities, and maybe focus more on imposing income taxes on the mega-rich who can be more resilient during such hard times.
Even more wisely, experts recommend that governments take the chance and encourage rich people to start new profitable and sustainable businesses, free of taxes, so they can create new jobs and eventually help to revive the economy faster and more efficiently.
While imposing taxes makes an effective solution for a few months, the world should prepare for a long-term crisis with smarter plans, that not only minimize losses but also maintain the potential for new opportunities.