In a bid to alleviate the adverse financial impact of the Coronavirus (COVID-19 or the Pandemic) on individuals and organizations in Nigeria, the House of Representatives (HoR) recently passed the Emergency Economic Stimulus Bill 2020 (The Bill). The Bill is essentially aimed at providing certain reliefs for individuals and corporate bodies to cushion the adverse effect of the economic downturn caused by the Pandemic.
Specifically, the Bill seeks to achieve the following:
- Provide temporary relief to companies and individuals to alleviate the adverse financial consequences of a slowdown in economic activities caused by COVID-19
- Protect the employment status of employees who might become unemployed due to possible retrenchment
- Provide for a moratorium on mortgage obligations for individuals
- Eliminate additional fiscal bottlenecks on the importation of certain materials, such as medical equipment, medicines etc., required for the treatment and management of COVID-19
- Cater for the general financial wellbeing of Nigerians pending the eradication of the Pandemic
The Bill provides for the following reliefs to be granted to corporate bodies and individuals in Nigeria:
- Special tax rebate – any Nigerian company which maintains the same employee status without retrenching any staff from 1 March to 31 December 2020, would be entitled to a 50% income tax rebate of the actual amount due, or paid as pay as you earn (PAYE) tax. It is instructive to note that this relief still applies where an employee dies from natural causes, voluntarily resigns (or has indicated intention to resign before 1 March 2020) or where the employee breaches the provisions of the Labour Act, 2004. The rebate, however, would not apply to companies liable to tax under the petroleum profits tax regime.
- Deferral of residential mortgage obligations – payment of mortgage obligations due to the Federal Mortgage Bank of Nigeria (FMBN), on residential mortgages obtained by individual contributors to the National Housing Fund, will be deferred for 180 days from 1 March 2020.
- Import duty waiver on selected goods – there would be an import duty waiver on medical equipment, medicines, personal protection equipment and such other medical necessities (as may be determined by the Minister of Health) required for the treatment and management of the Pandemic in Nigeria. The import duty waiver would remain in force until 31 December 2020.
The Bill is a welcome development as it seeks to alleviate the immediate effects of the Pandemic on the citizens of the country. It, however, raises a number of concerns, few of which are discussed below:
- It proposes the use of PAYE tax remittances as a basis for determining income tax rebate due to a company. Considering that the employer retained its employees during the tough economic times brought about by the Pandemic, this relief is welcome. However, would companies get actual cash refunds or would this rebate be in the form of reliefs from future tax payable? Where it is the latter, can companies carry forward unutilized rebates?
- Companies operating in the upstream sector of the Nigerian oil and gas industry (who are liable to tax under the Petroleum Profit Tax Act) are specifically excluded from benefitting from the special tax rebate. As crude oil price continues to fall, this category of companies are already faced with challenges of survival and extending the rebate to them will be commendable.
- The suspension of import duty on certain goods raises certain practical concerns. Would an official approval from the Ministry of Health for instance, be sufficient for importers to get their goods cleared at the port? Our view is that this should suffice and one of the objectives of the Bill, which is to remove fiscal bottlenecks in the fight against the Pandemic, should be an overriding factor to be considered.
We expect that the above concerns will be addressed either before the Bill is signed into law or during the implementation process. Please click here for a copy of the Bill. If you require further clarification or seek to understand how this would impact your business, please reach out to NGTaxPartners@DELOITTE.com.