COVID-19: Credits and incentives as an economic stimulus
Tax credits and incentives are set to play a crucial role in getting national economies back on track and functioning at high capacity. There are several key success factors that governments should consider when designing and operating post-COVID credits and incentives.
Tax credits and incentives are essential components of stimulus as countries seek to recover from the economic impacts of COVID-19. Governments globally are implementing grants, tax credits and deductions, as well as tax holidays and deferrals, allowing businesses to reduce operational costs and growth expenditure.
These programs also aid job retention by providing relief on business income tax contributions, support adversely affected smaller businesses and sectors, aid the future expansion of digital and ‘green’ firms, and enable faster development of infrastructure and risk diversification.
Several countries have initiated longer-term tax reductions. Countries such as Singapore have exemptions that will aim to boost the attractiveness of the financial sector. China implemented new tax breaks in eCommerce zones, and Japan may provide exemptions for small companies’ assets. The US has planned credits for small businesses establishing staff retirement plans. Ireland, Canada, UK, Germany, and many other countries have rolled out initiatives to support the unemployed and businesses affected by COVID-19.
Turning credits and incentives into successful stimulus
Credits and incentives will be essential to delivering strong support for the growth of businesses and wider economies, increasing productivity, and catalyzing spending. For such incentives to succeed, careful design, appropriate targeting, and smart delivery are vital, as we examine in this paper. The paper also explores the following key considerations for governments as they design and implement tax credits and incentives programs:
- Program integrity
- Transparency and fraud prevention
- Stability and guarantees for participants
- New work locations
- Attraction of private capital