Highlights on the emergency economic stimulus bill, 2020
Continued from last week
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.