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By Philips Adekemi
The COVID-19 pandemic has profoundly impacted global economies and led to unprecedented challenges for large and small businesses across the globe. This necessitates a swift response from governments to mitigate the economic fallout.Governments have begun to implement economic measures and policies to support businesses during this crisis. As part of their relief efforts, many governments are reassessing their taxation policies to alleviate the financial burden on businesses.
One of the most effective taxation policies in this era is temporary tax relief measures which were specifically designed to support businesses going bankrupt. According to Muro et al. (2020), tax deferrals, reduced tax rates, and tax exemptions are the primary tax relief measures employed by many governments. For instance, the United States introduced the Coronavirus Aid, Relief, and Economic Security (CARES) Act. One of the key features was the Paycheck Protection Program (PPP), which offered forgivable loans to small businesses to maintain their workforce (U.S. Small Business Administration, 2020). Furthermore, the CARES Act permitted businesses to defer payroll taxes and provided tax credits for retaining employees. This significantly alleviates the financial burden on businesses (U.S. Department of the Treasury, 2020).
In Europe, countries like Germany and France provided significant tax relief packages to support businesses. The German government has suspended advance tax payments for companies that reported substantial revenue losses due to the COVID pandemic (European Commission, 2020). These measures aim to improve liquidity and allow businesses to navigate the initial shock of the pandemic.
In the United Kingdom, the government introduced several taxation measures to support businesses affected by the pandemic. The government implemented a temporary VAT reduction for the hospitality and tourism sectors, lowering the rate from 20% to 5% to stimulate demand. These measures were to enhance liquidity and retain employment levels during the crisis.
The efforts of the Nigerian government are commendable as seen in the proposed policies. According to the Federal Government of Nigeria, (2020), its Economic Sustainability Plan (ESP) includes tax relief initiatives that permits the extension of tax filing and payment deadlines for various businesses. The Central Bank of Nigeria (CBN) has also introduced a N500 billion intervention fund to provide low-interest loans to businesses affected by the pandemic. While the CBN’s intervention fund and the ESP are positive steps, the overall response lacks the scale and comprehensiveness of other countries like the UK and US. Many still struggle to access financial support as they often face bureaucratic challenges. The situation has been further worsened by the public’s lack of awareness of implemented measures. Hence, the need for policy enhancement.
Tax Policy Recommendations for Nigeria During the COVID Era
The responses of the UK and US to the COVID-19 pandemic highlight the importance of swift, comprehensive, and accessible economic measures to support businesses. Both countries have implemented a range of tax relief options and direct support programs that targeted various sectors. Hence, the following recommendations are proposed to enhance business resilience and survival in Nigeria during this crisis:
Targeted Tax Relief Measures
In order to alleviate the financial burden on businesses and individuals, the Nigerian government should enforce targeted tax relief measures. For instance, the Emergency Economic Stimulus bill passed in March 2020 provided a 50 percent tax rebate for employers who retained their staff during the pandemic. However, expanding such measures will stabilize employment and support businesses struggling to survive.
Support of the Informal Sector
Given that a significant portion of Nigeria’s workforce operates in the informal sector, it is crucial to develop policies that specifically address their needs. This could include simplified tax compliance processes and incentives for informal workers to formalize their businesses. These measures would not only increase tax revenue in the long term but also provide these workers with better access to social safety nets.
Reinforce Tax Administration and Simplify Tax Processes
Improving tax administration is essential for enhancing compliance and increasing revenue. The government should simplify the process of filing taxes and train tax officers in agencies to allow for the ease by taxpayers file taxes and overall their obligations. This would involve leveraging technology to streamline tax collection and reporting processes.
Taxation for Industrial Policy
Tax policy can be a powerful tool for promoting industrial growth. During this pandemic, the Nigerian government should enhance foreign investments in key sectors, such as healthcare and technology via taxation policies and legislations. This could involve tax incentives for businesses that invest in these sectors, fostering economic diversification and resilience.
References
CBN. (2020). CBN launches N500 billion intervention fund for COVID-19. Central Bank of Nigeria. https://www.cbn.gov.ng
European Commission. (2020). State aid: Temporary framework for State aid measures to support the economy in the current COVID-19 outbreak. https://ec.europa.eu/competition/state_aid/what_is_new/coronavirus.html
Federal Government of Nigeria. (2020). Economic Sustainability Plan. https://www.nigeria.gov.ng
Muro, M., Liu, S., & Whiton, J. (2020). The COVID-19 pandemic’s economic impacts on small businesses. Brookings Institution. https://www.brookings.edu/research/the-covid-19-pandemics-economic-impacts-on-small-businesses/
OECD. (2020). Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint. https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-one-blueprint.pdf
UK Government. (2020). Job Support Scheme: factsheet. https://www.gov.uk/government/publications/job-support-scheme-factsheet
UK Government. (2020). Coronavirus Business Interruption Loan Scheme. https://www.gov.uk/guidance/apply-for-the-coronavirus-business-interruption-loan-scheme
U.S. Department of the Treasury. (2020). The CARES Act Works for All Americans. https://home.treasury.gov/news/press-releases/sm960
U.S. Small Business Administration. (2020). Paycheck Protection Program (PPP). https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program
U.S. Department of the Treasury. (2020). The CARES Act Works for All Americans. https://home.treasury.gov/news/press-releases/sm960
