Although, the primary target of the COVID 19 pandemic is public health, its impact on the global economies is quite calamitous and unprecedented. Business process functions across most industries are severely deterred due to the immense pressure resulting from the effects of the Covid-19 pandemic, therefore, many multinationals, complex and business-critical services running a global scale as well as the Micro, Small and Medium Enterprises (MSMEs) must be reassessed to meet the realities of our time. Countries around the world have put in place monetary and fiscal measures to cushion the hardship of the deadly virus on businesses, individuals, and households.
In a bid to cushion the effect of the COVID- 19 pandemic, the House of Representatives on the 24th March, 2020 passed the Emergency Economic Stimulus Bill, 2020 (“the Bill”). According to Section 1 of the Bill, the objectives of the Bill are as follows:
- To provide temporary relief to companies and individuals and alleviate the adverse financial consequences of a slowdown in economic activities as a result of Covid-19;
- To protect the employment status of Nigerians who might otherwise become unemployed;
- To provide a moratorium on mortgage obligations for individuals;
- To eliminate additional fiscal bottleneck on the importation of medical equipment, medicines, personal protection equipment, etc.; and
- To cater to the general wellbeing of Nigerians pending the eradication of the pandemic and a return to economic stability.
The Bill provides for three relief which are; reduction of income tax liability of an employer, waiver of import duty on medicines and medical goods and deferral of mortgage payments to the Federal Mortgage Bank of Nigeria for a fixed term.
- Reduction of Income tax liability of an employer
By Section 3 of the Bill, any employer that does not retrench any of its personnel but maintains the same employee status from 1st March, 2020 till 31st March 2020, such employer will be entitled to 50% reduction on Personal Income Tax remittances due or paid on its employee’s behalf from its income tax liability. For the purpose of the Bill, an employer qualifies to benefit from this tax relief if there is a reduction in number of employees due to death arising from natural causes, voluntary disengagement, or disengagement by virtue of a breach of the Labour Act Cap L1 LFN 2004.
According to the Bill, this tax rebate is only open to business registered either as an incorporated company pursuant to Part A of Companies and Allied Matters Act (“CAMA”) or a business name under Part B of the Act. with an exclusion of Employers that are partly or wholly under the Petroleum Profit Tax (“PPTA”) Act are not eligible for this relief.
- Import duty waiver on medicines and medical goods Section 10 of the Bill provides for import duty waiver on medical equipment, medicines, personal protection equipment, and other medical supplies and such medical necessities that may be required for the treatment and management of the COVID-19 disease in Nigeria. Import duty waivers shall take effect from 1st March 2020 to 31st 2020. However, this period may be further extended by the President in line with section 13(1) (a) of the Customs, Excise, Tariffs etc (Consolidated) Act.
- Deferral of mortgage Payment under the National Housing Fund
Pursuant to Section 8 of the Bill, individual contributors to the National Housing Fund may defer payment for residential mortgages by 180 days effective from 1st March 2020. The Bill further provides that the President may grant additional extension of not more than 180 days.
The above measures put in place by the government to ensure stability of the economy during this period of this pandemic is commendable. However, there are some loopholes contained in the Bill.
By the provision of the Bill, it is the intention of the drafters of the Bill that the tax rebate contained in Section 3 of the Bill is for the benefit of the employers. However, by the provision of the Personal Income Tax Act (PITA), personal income taxes are borne directly by the employees not the company. Section 108 of PITA defines a “taxable person” as any individual or body of individuals (including family, any corporation sole, trustee or executor) having any income which is chargeable with tax under the provisions of this Act”. It is clear from the provision of PITA that a company is not a taxable as contained in the Act.
The Court of Appeal in the cases of 7up Bottling Co. Plc v. L.S.I.R.B and D.S.A Agricultural Machinery Manufacturing Company Ltd v Lagos State Inland Revenue Board and Nigerian Breweries v. L.S.I.R.B, had to consider the effect of Section 53 on “assessments which is now section 54 of PITA. According to the Court, assessment is a matter between the RTA and the taxable person and not between the tax authority and an employer. The Court further held that the “taxable person” under PITA and “the PAYE system is the employee and not the employer.
The PITA imposes tax on income of individuals and not corporation. It is the responsibility of the employer to remit to PAYE taxes of its employee to the Relevant Tax Authority (RTA), thus the employer acts as the agent of the RTA.
Even though the Finance Act, 2019 grants tax relief to some companies based on the revenue generated by the company in a given year, it is expected that this Bill will provide for the waiver of corporate tax liability of companies during this period. As a company’s income is chargeable with tax under the Company Income Tax Act as against the Personal Income Tax Act as envisaged by the drafters of the Bill.
Another defect occasioned by the Bill is that the benefit to be derived from the provision of the Bill as it relates to business is restricted. By the provision of the Bill, the tax rebate contained in Section 3 of the Bill is solely restricted to companies registered under PART A and B of CAMA. This implies that companies such as Micro, Small and Medium Enterprises (MSMEs), who are mainly unregistered due to their sizes cannot benefit from this palliative. This is quite unfortunate because the MSMEs are said to be the major drivers of the economy.
According to Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), MSMEs make up about 47.8% of the National Gross Domestic Product (GDP) and contribute 7.2% to export. Similarly, a survey carried out by the Nigeria Bureau of Statistic, revealed that MSMEs in Nigeria account for 50% of Industrial jobs and nearly 90% in the manufacturing sector. Also, a study carried out by the Federal Office of Statistics revealed that 97% of all businesses in Nigeria are MSMEs of which the sector provides 50% of employment and 50% of its industrial output.
In order to benefit from the provision of the Bill, the government should make it mandatory for MSMEs to be registered before they can be entitled to the palliatives available. This can be achieved by offering free registration to MSMEs in collaboration with the Corporate Affairs Commission (CAC) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).
In conclusion, the introduction of the Bill is a welcome development even though it is not sufficient to ameliorate the economic hardship which the pandemic has impacted on businesses. However, the government may also introduce incentives such as waiver of income tax to be paid by companies, tax rebates, grants and loans etc, so as to enable companies especially those that has been hard hit by the pandemic to stay afloat during this period.
Michael Ezeh and Latifat Moradeyo
Associates (KMO Legal)