Businesses all over the world are battling the pandemic resulting from the novel coronavirus. The present crisis which started as a humanitarian crisis has transformed into system failure, having monumental economic consequences. Steps taken by governments all over the world to curb the spread of the virus, by restricting movements and shutting down businesses, prompts a stimulus package to avoid bankruptcy and insolvency. Nigeria, having taken a hint from other countries, has proposed the passage of The Emergency Stimulus Bill 20201into law to absorb the looming economic impact of the pandemic on the lives of its citizens. Amongst other things, the Bill seeks to provide temporary relief to both employers and employees. The main thrust of the Bill is to ensure the security of employees who may otherwise be retrenched as a result of the negative economic impact of COVID-19. The Bill intends to achieve this by proposing a tax incentive to employers from employees' tax obligation.
The Bill (which also proposes deferred mortgage repayment and import relief to the health sector) prescribes in Section 3 that an employer who maintains the same employee "status" without retrenching its staff from 1st March 2020 to December 31, 2020 shall be entitled to receive a value of 50% of the total personal income tax either paid or payable by its employees during the period. A qualifying criterion for eligibility is that the employer must be a registered business under Part A & B the Companies and Allied Matters Act (CAMA), excluding those in the upstream petroleum sector.2 This automatically excludes a majority of Nigerians who hold their assets in defective forms with ownership rights not adequately recorded/registered. Majority of these businesses include vendors hawking wares on streets, or in building or shades.
Personal income tax (or PAYE) is a tax obligation borne by employees; the liability, when it becomes due and payable, forms part of the revenue of the government. As such, the government is at liberty to determine how best to distribute its revenue for the overall benefit of its citizens. Whilst the philosophy underpinning the Bill is unassailable, it was inelegantly drafted; creating some ambiguities, one of which arises from the use of 'rebate'.
The Bill employed the use of the word 'rebate' in granting the incentive and in defining the meaning of the word, creates confusion. Section 5 of the Bill defines 'rebate' as 100% refund of employers' income tax which shall be 50 per cent of PAYE Tax due or paid on the employees of such employer. The definition creates some ambiguities. In one breath, it could be interpreted to imply that PAYE is paid by the employer on behalf of the employee. In another breath, the word 'rebate' as defined by the Bill could be understood to mean a refund to the employer of its income tax paid or payable either under the Companies Income Tax Act or Personal Income Tax Act in the value of 50% of PAYE due or remitted by the employer. Perhaps, 'rebate', which is a refund on excess tax paid, should be replaced with a word that has a broader meaning (for example 'incentive') to better convey the purpose of the Bill.
Sailing away from the inherent ambiguities, the Bill suffers a defect in its purpose, in that unregistered businesses or employers are excluded from benefits derivable from the Bill. This disregards the glaring statistics that a greater percentage of Micro, Small and Medium Enterprises (MSMEs) are unregistered and these businesses are the backbone of economic growth in many countries, including Nigeria. In a 2017 IMF Report3, the informal sector was a major contributor to the country's economy, accounting for a significant portion of employment and 65% of the nation's GDP. According to a recent report by the Ministry of Industry, Trade, and Investment, Nigeria has over 37.07 million MSMEs, and they account for more than 84% of total jobs in the country.4 Conversely, in 2019, the Acting Registrar of the Corporate Affairs Commission revealed that the total number of entities registered with the Commission from its inception stood at 3.1 million (as at 2019).5 It is evident from the foregoing statistics that most businesses are unregistered, therefore without defined liability. Most businesses in Nigeria are in the informal sector without any governmental record. The result is that this palliative fails to cater for about 65% of businesses in Nigeria, thereby defeating the purpose of the Bill.
The palliative provided by the Bill is tied to PAYE tax liability. Unregistered businesses are outside the tax net and are unable to meet the condition enabling access to the incentive. It is therefore proposed that a novel but innovative palliative be made accessible to these businesses. Registration may be made a pre-requisite for accessing the palliative. It would create an opportunity for the government to get more businesses registered, thereby capturing them within the tax net. This may be achieved by commencing a nation-wide free registration of small scale businesses by the Corporate Affairs Commission (CAC) in collaboration with the Presidential Enabling Business Environment Council (PEBEC). That way, the government would exchange palliatives for improved data and contingent future revenue. In the long run, the government will harness great benefits as improved data will assist governmental planning and future economic projections. These palliatives may be in the form of small scale loans, tools-capital, payroll support, foodstuff and tax forgiveness or temporary exemption. And this may constitute additional palliatives covering all businesses whether registered or not.
The exclusion of the upstream petroleum sector6 from benefitting under the emergency economic stimulus package is equally of great concern. The current low oil prices constitute a serious problem for oil investors in Nigeria particularly those in the upstream sector. Considering the dwindling price of oil in the global market, the resultant effect on oil producing companies in the upstream sector should be a major concern to the government. In fact, the Oil & Gas sector has been considered by many analysts as the worst hit by the COVID-19 pandemic. Due to the downturn in the demand of oil globally, many of the oil producing companies have been unable to generate income to fulfil their financial obligations to their employees. This could result in massive layoff of employees in the service of companies in the upstream sector. Excluding oil producing companies for the palliative notwithstanding the resultant effect of the pandemic on their businesses appears not to have been well thought out. In order to sustain the continuous participation of the players in the upstream sector of the Oil & Gas industry and consequently prevent massive layoff of staff, it is strongly recommended that the palliative should be extended to companies under the Petroleum Profit Tax Act. Other innovative palliatives (i.e temporary payroll support) may equally be made available to this sector.
Notwithstanding the defect in the Bill, the various steps being taken by the government to ensure a sustainable economy during and after the pandemic are commendable. Notable amongst these, is the CBN's 50 Billion Targeted Credit Facility7, which like the Bill, appears equally limited in its coverage. Thus, whilst the Bill is a welcome development and indeed a bold step by the Nigerian government, the purpose of the Bill will inevitably be defeated if unregistered businesses are excluded. As is clear from the analysis above, a larger percentage of businesses in Nigeria are unregistered. If the palliative only benefits very few businesses (registered businesses), large-scale business collapse and unemployment is unavoidable. It is therefore recommended that the Bill be reviewed to introduce a palliative that will also cater for the informal sector/unregistered businesses. That way, a greater percentage of businesses will be saved from collapse, and the Bill would have achieved its purpose.
1 The Bill was passed by the members of the House of Representatives on March 24, 2020.
2 Section 6 of the Bill provides that the Bill does not apply to companies (employers) under the Petroleum Profit Tax Act.
3 Available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=2ahUKEwiG06idy5XpAhXNgVwKHU
Economy-in-Sub-Saharan-Africa-Size-and-Determinants-45017&usg=AOvVaw3IaDR_pXVcrHHymvij11Bt Last Accessed on May 2, 2020 at 5.24 p.m.
4 Available at https://www.premiumtimesng.com/business/business-news/215707-small-medium-enterprises-account-84-per-cent-jobs-nigeria.html Last Accessed on May 2, 2020 at 2.30 p.m.
5 Available at https://www.dailytrust.com.ng/nigeria-has-3-1m-registered-companies-cac.html Last Accessed on May 2, 2020 at 2.40 p.m.
6 Section 8 of the Petroleum Profit Tax Act (PPTA) imposespetroleum profit tax on companies in petroleum operations. Section 2 of the PPTA defines 'petroleum operations' to apply to companies in the upstream operations of the oil industry. As had been pointed out earlier, the Bill excludes these companies from benefiting therein.
7 Available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=2ahUKEwjDlOzQp5XpAhVHXsAKHdco
2F2020%2FFPRD%2FN50%2520Billion%2520Combined.pdf&usg=AOvVaw2bvvwtWOGCKClUaw7F3HfU Last Accessed on May 2, 2020 at 2.44 p.m.
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