Survey: Administrative burden and tax relief in the corona crisis

That the corona crisis has a negative impact on the majority of companies is, unfortunately, a given. To boost firms’ liquidity during the pandemic the German government has issued several tax measures. Nonetheless, results of our recent survey show that not all these measures are considered helpful. Nor are all respondents convinced by the government’s promise to process applications and requests with regard to (tax) relief unbureaucratically. Finally, the results clearly show that firms are faced by strong bureaucratic hurdles, independent of corona. Therefore, an unbureaucratic processing of the temporary measures is crucial.

 

Generally speaking, tax matters can expose companies to major challenges – especially small and medium-sized enterprises: tax regulations are complex and constantly changing. In our project we research the tax burden of companies, more specifically we study the perception of expected tax burden and how this perception influences individual and firm decision-making. When corona hit, we of course had to take this effect into account. How does corona affect the expected loss/profit and investment plans of firms? How are the temporary tax relief measures perceived? How do firms estimate their tax administrative burden? How do these perceptions about tax and administrative burdens affect firms’ business decisions?

 

Online survey

We sent out this regionally focussed survey in May and collected responses until the end of June. 305 companies answered the questionnaire in full, most of which are based in North Rhine-Westphalia and are rather small or medium-sized. A large share of respondents (38,0%) belongs to the handicraft sector, a sector often missing in related studies. We highlight our key findings in this post. For more information, please refer to our Executive Summary. 

 

Small and medium-sized firms are hit hard

More than 55% of the surveyed firms are confronted with a deteriorated business situation; for another almost 10% of the firms the corona crisis and its effects represent a threat to their existence. This is also reflected in the proportion of respondents who expect a profit or loss in 2020.

The impact of the crisis is perceived as especially pronounced in the handicraft sector: While 97% of the handicraft firms report a profit in 2019, the share of firms expecting a profit in 2020 decreases by more than 40%-points. Also, the overall results clearly show that the corona crisis exposes the majority of companies to unforeseeable problems. This underlines the often-stated necessity of state help, as is also confirmed by our survey: a total of 54.8% of the respondents in this survey have already taken advantage of corona subsidies offered by the federal government and by the states (Bundesländer).

(Expected) Profit/Loss

Tops and Flops of proposed tax measures

The German government has issued several tax measures to assist businesses that are affected by the corona pandemic. Furthermore, additional tax measures are discussed. We present a “top 3” and “flop 3” below (for an overview of all the ratings see our Executive Summary). A temporary reduction of the business tax burden is perceived the most useful. On the other hand, the reduction of the VAT rate is most frequently considered to be of little/no use.

 

Scepticism towards an unbureaucratic processing

The German government has announced an unbureaucratic processing of applications for (tax) relief to help deal with the corona crisis. The surveyed firms show a lack of trust in this announcement: Of those firms who have not applied for tax relief yet, only 26,5% trust in the announced unbureaucratic processing of applications. However, of those that already applied for relief measures nearly 40% believe in an unbureaucratic processing of applications.

 

Do you trust the announced “unbureaucratic processing” of applications for tax relief relating to the corona emergency aid?

Invariable heavy administrative burden of tax

Bureaucratic hurdles are considerable, independent of times of crisis and have an impact on everyday business life. In fact, the majority of firms struggles with managing the heavy administrative load caused by tax issues. The stated percentage of administrative burden that relates to tax burden varies per company and is estimated to up to 80% of the total bureaucratic burden. On average, the tax administration burden accounts for about one-third of the total business bureaucratic burden.

How high do you estimate the share of the administrative burden relating to tax matters in comparison to the total bureaucratic administrative burden in your company?

 

In conclusion, many medium and small-sized companies are strongly affected by the corona pandemic. The survey shows that firms think of tax relief as one helpful measure to control the crisis. Especially tax relief measures resulting in financial relief are considered to be most useful by the firms. Nonetheless, since for these firms, on average, one-third of their administrative burden consists of tax-related administration, the containment of tax related administrative burden should – not only in times of corona – play a key role in reforms. An unbureaucratic processing of the temporary measures is therefore crucial.

 

Read the full Executive Summary.

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