How does the COVID-19 pandemic affect firm profits and tax payments in developing countries? We use administrative corporate tax records from ten low and middle-income countries around the world to address this question. Modelling the lockdown-triggered revenue shock with simple and transparent assumptions, we predict that less than half of all firms remain profitable by the end of 2020, about 5-10% of the aggregate annual payroll is lost, and firm exit rates double. As a result, we expect tax revenue remitted by the corporate sector to fall by at least 1.5% of baseline GDP. Differences in sectoral composition and in firms’ cost structures generate heterogeneity in results across countries: wage subsidies are less effective in lower income-countries, and government revenue losses are smaller. Our study illustrates the benefits of harmonized administrative tax data across countries for just-in-time policy analysis.
Published on: 6th September 2020