The Economic Consequences of the Coronavirus Pandemic and its Reflection on Taxes

Dr. Ömer KAVRAR-Selcuk University

The world has undergone a dramatic change since early 2020. The coronavirus pandemic, which originated from Wuhan city of China and spread to the world, brought the health systems of countries to the point of paralysis. This situation has also had far-reaching economic repercussions and continues to do so. Some sectors, such as hospitality, tourism and travel, have been devastated. Many businesses had to reevaluate the way they carry out their business and had to reinvest. Globally, all sectors and every single player in the economy, from the smallest to the largest enterprises, were heavily affected by the pandemic.

As we leave the year 2020 behind, we still face enormous challenges due to the effects of Covid-19 on the economy and health sector. In the face of the pandemic, many governments around the world have chosen to sacrifice their economies by closing their borders to protect the lives of their citizens. Throughout the world, many businesses have been hit financially by governments' responses to Covid-19, and perhaps most will not be able to survive these shutdowns.

Worldwide, governments have had to take action with various fiscal stimulus measures to reduce the devastating economic effects of Covid-19. From time to time, various public rhetoric and pressure on how Covid-19-related fiscal stimulus should be used, left governments in a difficult situation after the closing of the borders of the countries. There is no doubt that increasing taxes to finance the cost of economic stimulus measures is and will be an option government will consider. However, the last thing that the surviving businesses need will be the additional burden of rising taxes! Moreover, another reflection of rising taxes on consumption or personal income will be on household spending.

Unfortunately, there is no quick fix and recovery solution for economies. However, the measures to be taken need to be balanced by taking into account the effects on entrepreneurs and households. On the other hand, this precautionary measure will require a combination of increasing government revenue, limiting government spending, and economic growth. In short, governments should aim to increase tax revenues by ensuring business profitability and increased employment, and if possible, without the heavy burden of increased taxes on economies and residents in the foreseeable future.

Authorities should consider what they can do to help businesses recover, and encourage them to start new businesses and succeed. This should include providing support to encourage businesses to use digital technology more effectively and enter new markets through online sales, and help drive trade in local and global markets. Productivity-enhancing reforms are critical in this respect. It is also necessary to look at how taxation is made, how the workforce is trained for the future, and how the system of bureaucratic relations hinders growth and innovation.

Despite the fact that the danger is still far from over, a great effort is being made to bring the economy back to its feet with the measures taken almost by the whole of society. In the post-pandemic period, the way to be a strong and competitive country in the global economy is to accept the debt burden brought by this pandemic and to produce effective policies to overcome it. In order not to reflect the financial consequences of the pandemic to future generations, it is necessary to implement structural reforms as soon as possible. Whichever policy path governments choose, the path for the economy to return to the old normal will not be fast or straight.