The third Coronavirus Tax Assistance Act is not ambitious enough to soften the impact of the coronavirus crisis, which is hitting the German economy even harder than the financial crisis. Given the extent of the crisis, measures have turned out to be too cautious and not innovative enough on the whole. Therefore, further measures are appropriate. Christopher Ludwig, researcher in the ZEW’s “Corporate Taxation and Public Finance” Department, made this position clear at an expert hearing on the third Coronavirus Tax Assistance Act at the German Bundestag Finance Committee in Berlin.

According to Christopher Ludwig, the Coronavirus Taxt Assistance Act is not developed enough to mitigate the crisis.
ZEW economist Christopher Ludwig on the third Coronavirus Tax Assistance Act.

“The tax loss carry-back is a good and targeted instrument to support companies with liquidity in the short term. The planned increase of the tax loss carry-back from five million to ten million euros will, however, only effectively help a very small percentage of German companies. Even in years of strong economic growth, an overwhelming majority of German companies fall short of the one million euro carry-back limit that already existed before the coronavirus pandemic.

Moreover, the carry-back of expected losses in 2021 into the previous crisis year is likely to remain ineffective for many companies that have been affected. In order to ensure the liquidity and survivability of companies during the coronavirus crisis, a retrospective extension of the carry-back period for losses incurred in 2020 and 2021 from one year to several years should be taken into consideration. The current minimum level of taxation should also be lifted in future periods, at least for losses due to crisis.

Additionally, steps should urgently be taken in refraining from going ahead with measures concerning value added tax (VAT), especially from an extension to granting a reduced VAT rate of seven per cent for restaurant and catering services provided. At best, this would cause deadweight effects which are, however, unlikely to occur. The catering and hotel industry is currently facing an existential crisis that is not linked to pricing. Tax measures related to turnover cannot be effective when businesses in that industry have been forced to close their doors, resulting in a massive decline in turnover.”





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