- May 27, 2020
- Posted by: CSR-in-Action
- Category: Insights
The global outbreak of the novel 2019 SARS-CoV-2 (COVID-19) has forced the implementation of strict measures on the movement of persons, goods and services across different countries leading to adverse economic effects. Since the World Health Organisation (WHO) declared the virus a pandemic on 11 March 2020, many countries around the world have responded with various containment strategies. Nigeria initially declared a 14-day lockdown in Lagos State, Ogun State and the Federal Capital, extended it by another two weeks, and eventually lifted with strict rules in place for social distancing, covering our faces with masks and business outside of the home conducted between the hours of 8am and 3pm. Other state governments, including Ekiti, Oyo, Rivers and Kaduna have imposed varying degrees of restrictions, including on public gatherings and markets within their states.
State of Nigeria
The global economic shutdown has had direct impact on the demand for fuel and energy, making Nigeria, the largest producer of oil in Africa, and with control of 2.7% of world’s supply, see its lowest demand for oil in 25 years. Expectedly, an over abundant supply of oil with no ability for offtaking has forced quickly dwindling prices globally. For instance, on 22 April, 2020, The Guardian UK, reported that Brent crude price, which Nigeria uses as benchmark for its oil export, fell to a 21-year low price of – $15.98. Energy experts have also predicted that prices are likely to even contract further as onshore oil storage would soon get filled up and oil producers would be forced to pay to get users to take their barrels.
The state of Nigeria’s economy and stability becomes even more worrisome when the helplessness of the masses is taken into the consideration, with 80% of the labour force belonging to the informal sector which is characterised by low income, low saving and absence of health insurance and pension. A December 2019 United Kingdom Enhancing Financial Innovation and Access (EFInA) survey established that 100 million Nigerians earn less than N700 per day, insinuating high levels of poverty. And other data point to the fact that about 50% of Nigerians have no savings to fall back on being primarily daily wage earners.
Effects of Partial Lockdown
Expectedly, the full lockdown and now partial lockdown, has spiralled into varying challenges for businesses and individuals in the country. There is a short supply of cash in country and the opposite is what business needs to survive as corporates seek cash flow to stay afloat. The lack of access to goods, as has happened around the world, has led to a temporal inflation compounded by the drop in the value of naira. The drop in the value of naira, in itself, has been facilitated by the plunging oil price leading to a consequential low foreign exchange reserve against the pressure of dollars which has seen increase in demand since the start of the pandemic. These multifaceted challenges have impacted negatively on not only business and livelihood, but Human Rights Watch has seen a surge in human rights abuses within businesses and homes. To stay afloat, many businesses have resorted to reductions in salaries by different percentages, compulsory leave and in severe cases, sacking. Indeed, global experts have argued that in addition to revenue and job losses, a harsher economic reality will hit the country as the world grounds more deeply into a global recession.
The Federal Government, in its limited ability to provide reprieve, did introduce fiscal and economic stimulatory measures to ameliorate the impact on businesses and save the economy from collapse. The House of Representatives on 24 March 2020, passed the Emergency Economic Stimulus Bill, 2020 to provide relief, protect jobs and reduce the financial burden on citizens. It is however evident that more needs to be done, as business partners are forced to brace up for an uncertain and rapidly changing situation. There has also been talk in the news that the FG seeks to invigorate the economic stimulus somewhat by funding a Special Public Works Programme to generate employment.
Government Support from the Private Sector and Multilateral Organisations
Whilst many businesses have nearly ground to a halt, the beauty is, as I wrote in my article of 15 May, 2020, titled ‘COVID-19 Pandemic and the Goodwill of Nigerians’, “the COVID-19 pandemic has once again brought to the fore the enormous goodwill of Nigerians’. I also pointed out that “individuals, corporate organisations and religious bodies have stepped up to contribute to the fight against this invisible enemy that has laid siege on our country. The call for support from a beleaguered government at both the federal and state levels has been met with a robust response by Nigerians from all walks of life. Billionaire business people, religious leaders, celebrities and even children alike, have all pledged laudable contributions ranging from billions to thousands of naira.”
Beyond the contributions in cash to the government totalling over N50bn naira, businesses have helped with the provision of isolation trucks and centers, ventilators, protection and testing facilities and deepening communication around the scourge in communities around the nation. Leading in the private sector scene, is the business-led Coalition Against COVID-19 (CACOVID), in which big corporates have pooled resources amounting to ₦25,893,699,791 as at 17 April, 2020, to provide direct support to private and public healthcare’s ability to respond to the crisis. As at 20 of April, 2020, CACOVID had ordered 250,000 test kits and 150,000 extraction kits for molecular testing and targeted to reach 1.7 million households with food relief package. Other SME coalitions such as ‘We are together’ and several other private organisations have also contributed to combat the impact of the lockdown. This has led to the government establishing a Framework for the Management of Covid-19 Funds in Nigeria under the Treasury Single Account, a first of its kind to judiciously utilise the funds contributed.
An interesting and welcome development is external aid to the Federal Government of Nigeria through the International Monetary Fund (IMF) with China as a key driver, which has cancelled six months off Nigeria’s debt profile in a $500million relief package deal. The European Union has also donated N21 billion to help the country in the fight against coronavirus, and additionally mobilised other sources of funding, having already paid 1.2 million euro to UNICEF, which is to provide further palliatives to the country, amongst other such multilateral interventions.
Meeting Business Halfway Through Tax Exemption
Businesses are entities set up for profit, and responsible businesses who wish for sustainability, ensure that their footprints have minimal negative impact and tremendous positive impact. Businesses also play a strong role in advancing national socio-economic development, which is why the United Nations, on identifying the parameters to achieve the Sustainable Development Goals in 2015, noted the critical role that the private sector plays in tackling development, especially through thriving Corporate Social Responsibility (CSR) projects. The business contributions to COVID-19 can, therefore, be argued to be that businesses are playing their role in driving development.
How then can government support these businesses which have been good corporate citizens? The government’s role is to be a facilitator of regulatory or promotional economic policies, as expected in a mixed economy like Nigeria, including direct or indirect measures to ease social and economic activities of private businesses. The 2019 Finance Act already grants tax exemptions to small businesses, defined by the Small Scale Industry Development Plan of 1980 as any manufacturing process or service industry, with a capital not exceeding N150,000 in manufacturing and equipment alone, while the tax rate for medium-sized companies, companies with generally between 50 and 249 employees, has been reduced from 30% to 20% since the onset of COVID-19. The Federal Government has also exempted pharmaceutical and medical goods from VAT (Value Added Tax) and expanded same expansion on basic foods such as milk and milk products, meats, fish, nuts, and beans, cereals and grains, hoots, starchy fruits, and tubers and fruits and vegetables, as well as announced tax relief on donations in support of COVID-19.
The Economic Sustainability Committee, chaired by the Vice President, Prof Yemi Osinbajo, is expected to lead efforts to oversee more efficient coordination of our monetary, fiscal and trade policies, and the various relevant ministries – Finance, Budget and National Planning; Industry, Health, Trade and Investment, Petroleum Resources and parastatal, the Central Bank of Nigeria (CBN), at this auspicious moment in time. Laudable efforts, indeed, by the Federal Government.
It would, however, help for the majority of businesses to know how to go about seeking tax reprieve for their contributions and whether in-kind contributions attract any kind of deductions. The short of the matter is that many businesses have no or little means of income and as such asking medium and big businesses to pay tax at this time could be akin to closing the proverbial coffin with a final nail. If businesses are not making money, or in some cases, as little as 25% of their estimated income, from what source would they pay tax? How will they justify deduction of Income Tax to their already financially pressured staff?
It is not clear what plans the FG has for big business, specifically, which employ the larger majority of citizenry, and whose impacts reverberate more positively or negatively across different portions of the country. Should four business with over 10,000 workers let go of 50% of its employee, no matter the provision of soft landing, in a population struggling with underemployment and unemployment, that would not only mean 20,000 people, but perhaps 10 times more considering spouses who may not be employed, and a dependent extended family and friends chain.
Across the nation, business leaders, entrepreneurs and socio-preneurs are seeking recovery patterns for their businesses within different sectors of the economy. This is why countries like China have enacted wholesome tax treatments and transparent import VAT relief till the end of the year, if need be. In addition to tax cuts, small loans – amount range which can be determined by a committee – should be exempted from repayment interest which the government can provide to the lenders through a special intervention fund via the CBN. These are important and urgent steps that the government should be looking at taking in order to foster ease of doing business in Nigeria.
Other ways in which the Federal Government can reciprocate the good faith showed by businesses through regulatory measures in the form of tax reprieves, include putting a temporary blanket stop to all VAT – which was increased from 5% to 7.5% – as well as to Withholding Tax .The FG can also consider tax relief on Income Tax for a well thought out period of time, to importantly reflect true and direct empathy for its people. This empathy would be reflective of the world’s unprecedented reality, as scientists say that there is little chance for mass treatment or vaccination available to the world for another 18 months or so.
The Business Coalition for Tax Reform, a group of Australia’s most highly respected tax experts and academic economists, highlight that taxes should be consistent with overall savings policy which, therefore, means that if there is a dwindling in the income and savings of business owners, there should be a commensurate reflection in the nation’s tax reforms and policies. Ordinarily, tax treatments are expected to be transparent, efficient and sustainable, and as such, treatment of personal income and fringe benefits should be in conformity with reality. This argument for transparency and fairness is in tandem with the world’s most recognised sustainability standards setting body, the Global Reporting Initiative’s (GRI) 2019 disclosure on Tax Transparency. No doubt, tax reforms at this time will increase transparency, encourage trust and credibility in the country’s tax systems and will also allow business owners and leaders to make informed decisions on companies’ tax positions.
These are important and urgent steps that the government should be looking at taking in order to foster ease of doing business and ease of accessing income in Nigeria. The government must realise that in the long term, this will allow for increase in productivity, more stable employment rates, less insecurity and will carry us forward as we continue to work towards a nation that we are proud of.