Delayed reaction: will the economic damage caused by the pandemic be known too late?
At the beginning of the coronavirus crisis, the impact on global businesses was unknown. But as the months tick by with continuing restrictions on businesses and movement, it is clear that the repercussions of coronavirus will be felt for a long time.
During this period, businesses around the world are taking enormous economic hits, the extent of which won’t be fully understood and quantified until further down the line. These effects range from those on individual organisations through to the economies of entire countries as the cumulative impacts are processed. Revenue is likely to be falling through the cracks during the crisis; businesses are folding and those still standing will have financial experts working remotely and/or furloughed, so their expertise won’t be on hand to steer the forecasting.
However, advancements in technology may well give businesses a far better picture of their current predicament. This is being led in many places by tax authorities, as the move to more digital tax returns and real-time or near-real time reporting are outfitting the authorities and firms alike with far more up-to-date financial insight in countries leading its adoption.
Clarity is the most powerful tool to harness amid economic strife, but it’s often the most difficult to wield. Observing the extent of financial loss from outgoings, productivity disruption and unforecasted outlay can sometimes take months to visualise. According to the European Commission, the impact on economic activity in 2020 will be more significant than anticipated and the UK’s GDP is set to shrink by 10 percent. Naturally, alarm bells are going off across all industries as we tackle just how exactly to steer through what looks like such unending fiscal damage.
On a macro level, the gravity of the loss can now be measured through the use of continuous tax controls (CTCs) and VAT monitoring. For countries already implementing CTCs, like Hungary and Italy for example, their governments are gifted with a much more instantaneous insight into how much revenue is truly being lost under these crisis conditions. The turn of events has highlighted the benefits of having a panoramic and timely digital view of a nation’s economic health, and economic recovery is very much contingent on access to granular data.
Countries in Latin America have access to in-line invoice data for all transactions in their economies, so are publishing highly detailed pandemic impact analysis reports at key points during the crisis. The data quality, its immediacy and the fact it covers all or a very large proportion of a country’s economy is a real game changer.
Several countries were already shifting towards CTCs, but as with many trends the pandemic has substantially propelled these ideas into practice much faster than we might have imagined possible. With EY predicting a full economic recovery achievable by 2024 earliest, businesses and governments alike must keep a firm and diligent eye on the situation.
Ongoing and dynamic assessments will inform governments and businesses of what’s next and support their decisions as they look to rediscover their financial footing – the benefits of digitalisation have now taken on a much greater significance. Firms submitting their actual invoice data from business transactions instead of summary returns directly to government platforms (B2G) in real or near-to-real-time, rather than periodically, can instantly view their outgoings; in turn, governments can gauge the macro picture based on overall VAT loss much more accurately using digital means.
Imagine having a dashboard that reveals the evolution of supply and demand instantly, tracks stock movements, imports/exports and price fluctuations in real-time. Having insight into these and many other data points, not just on a summary level, but digging into the minutiae of deep subcategories of goods and services offered and sold in an economy opens up a new window of visibility for businesses and governments. Clearing the fog of uncertainty with this kind of data will allow them to cut through risks and identify opportunities associated with policy and investment decisions.
Broadly, if countries could see the loss in real-time they would also be able to track changing behaviours and market size – at the moment, they are having to make informed guesses without robust data to back up forecasts. This is why it’s imperative to understand what’s going on now to pave the way for what is on the horizon in months and years to come.
Companies of all sizes must adhere to the same rules when it comes to evidencing their fiscal activity and financial footprint, which is why indirect tax measurement is the crucial indicator of the true damage of these troubling times.
Sophisticated, intricate supply and value chains are all implicated in a complex web, creating intense interdependency at all levels, so monitoring developments as they happen is paramount to successfully surviving in this climate. Keeping a close watch on individual digital invoices and other key commercial data allows a much more forensic and accurate view of how many firms are still afloat and which economies are in serious hot water.
What’s more, vast VAT discrepancies were already a concern, but now with deliberate consumption tax rate reductions and other fiscal incentives, not to mention long haul economic inactivity, devastating impact on revenue collection is predicted for both short and medium term.
Access to data will help unravel the complexities and give us a better understanding of what the next steps should be following a recession. Investing in partnerships that operate across a global landscape will bolster the knowledge businesses and governments need to map out the road to economic recovery. Understanding the markets and how they are impacted should be top priority, and data analysis that keeps pace with the developments as they happen will guide the process.
With so much at stake, and whole economies already facing devastating deficit and profit loss, technology must continue to give us the clear vision we need to put the pieces back together. Even on a micro level, individuals can harness data and keep a continuous record of activity to steer strategic decisions and future investments. The value of having detailed real-time economic data available for decision-making cannot be underestimated. However long it takes, with real-time vision the future might not be so uncertain after all.