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State mechanisms to combat COVID-19 influence on the economy

17 March 2020

Jelena Bartule , Tax Manager |

With COVID-19 continuing to impact people and countries around the world it is crucial to keep up to date with the different relief mechanisms that are implemented by governments in efforts to support businesses. It is likewise important to be aware of the various strategies that have been formulated to ensure that the economy remains steady during the outbreak.

The instruments used by governments comprise new laws and regulations being adopted in an urgent manner, as well as temporarily postponement of VAT payment deadlines. The purpose of the different initiatives is both to mitigate the negative financial consequences for individual businesses and to support the country's economy on a larger scale.

The Danish government, for example, has attempted to mitigate the negative impact on companies’ liquidity by postponing the VAT payment deadline, AM-contribution and A-tax. Whereas Thailand provides reduced payroll tax rates, under the condition that the number of employees is the same as in December. While the Malaysian government, in addition to reduced personal income tax rates, offers discounts on electricity bills to the tourism industry.

Latvia, at the time of this post, has not yet implemented any relief mechanisms in response to the current situation. A special governmental steering group has been established on 16 March to support businesses and entrepreneurship in preventing economic consequences of the coronavirus disease COVID-19. The following support measures are currently being discussed and formulated in close cooperation with social partners:

  • Credit guarantees to allow a company facing temporary cash flow problems to postpone the principal instalments until the situation is resolved. Such support program will be provided by Altum, a development finance institution;
  • Deferred tax payments (which can already be extended by one year at the State Revenue Service);
  • To enable bank lending, on 12  March the Single Supervisory Mechanism, which monitors the effects of the coronavirus on banks in the eurozone, decided to ease the requirement for banks to build and maintain liquidity and capital reserves. Consequently, all entrepreneurs experiencing temporary difficulties should first turn to their bank.