The lockdown extension in three of Nigeria’s major states has brought with it fears of financial hardships. In response, the Nigerian government has announced some measures to help ease the burden on individuals and businesses alike.
On a broader spectrum, several countries are setting up fiscal relief policies to help their citizens cope with the effects of the pandemic and according to the United Nations Conference on Trade and Development (UNCTAD), the current situation demands developing countries to “do whatever it takes” to save jobs, lives, and properties.
The Nigerian government has recently announced that it will be disbursing emergency funds to households in its National Social Register of Poor and Vulnerable Households as well as to low-income individuals.
Also, the Central Bank of Nigeria (CBN) has announced a ₦50 billion ($129.4 million) COVID-19 intervention loan for small and medium enterprises in various sectors that have a viable business opportunity in, or have been adversely affected by, the pandemic.
We take a look at some financial measures that could cushion the economic effects of the lockdown for companies and individuals alike.
The economic effects of COVID-19 have proven to be very tough for businesses to handle, and for some this has caused lay-offs, while a few others have resorted to pay-cuts.
The federal government of Nigeria is working on the set-up of a ₦500 billion ($129.5 billion) COVID-19 Crisis Intervention Fund to upgrade healthcare facilities and fund Special Public Works Programme to generate employment.
The recently signed Finance Act of 2019 already gives tax breaks to small businesses with annual revenues of less than ₦25 million ($64,729) and taxes for medium enterprises have been reduced from 30% to 20%.
In a somewhat timely manner, the Nigerian Information Technology Development Agency (NITDA), recently convened a committee of seasoned entrepreneurs to come up with cushioning measures during the lockdown.
As part of the recommendations, NITDA released a form where startups offering essential services could apply to obtain exemptions from the lockdown.
However, as pointed out by the committee, a lot of Nigerian startups could do with tax breaks and incentives during this period. This is especially true for startups most affected by the lockdown such as ride-hailing services, online hospitality, and pro like Airbnb.
While the existing tax policies were put in place before the lockdown, the introduction of more incentives and cushions for Nigerian startups cannot come soon enough for them.
VAT and PAYE
The lockdown in Nigeria seems to have caused an increase in Internet usage and a possible side effect is an increase in the purchase of goods and services online.
Encouragingly, the Nigerian government has expanded value-added tax exemptions for basic food items as well as medical and pharmaceutical items.
However, other services are still subject to VAT which was recently increased from 5% to 7.5% in February 2020 and could benefit from a reduction during the lockdown period.
An example of an important service affected by the increase in VAT is telecom services such as voice calls, SMS, data, or banking services such as electronic transfers. Given the restriction of movement, it could be safe to assume that calls, texts, and online transactions have increased, and Nigerians could benefit from a VAT reduction.
Also, disposable income for employees could be increased with the reduction of the pay-as-you-earn (PAYE) tax which could also cushion the effects for company employees.
Globally, some countries are offering incentives to aid individuals and businesses alike, and in Africa, Kenya recently announced a reduction of its VAT rate from 16% to 14%, from April 1, 2020, of PAYE and company income tax.
Another noteworthy measure is the temporary suspension of listings on Kenya’s Credit rating bureaus (CRBs) as instances of individuals defaulting on loans greatly increased.
According to the Nigeria Inter-Bank Settlement System Plc (NIBSS), the total volume of electronic transactions hit ~367 million in Q1 2020, up 134 million from 233 million in Q1 2019. This rocketed the value of e-payments for Q1 2020 to ₦31.2 trillion ($80.7 billion), up ₦7 trillion ($18 billion) from ₦24.2 trillion ($62.7 billion) in Q1 2019.
These figures clearly show that now more than ever, Nigerians are increasingly adopting e-payment channels for the purchase of goods and services.
In December 2019, the CBN reviewed electronic transactions charges to ₦10 ($0.026) for transactions below ₦5000, and ₦25 ($0.065) for transactions between ₦5,000 ($13) and ₦50,000. Transactions above ₦50,000 ($130) still retained the previous fee of ₦50 ($0.13).
However, Nigerians still have to face other charges for SMS alerts, stamp duties, and USSD for some telcos, in addition to the increased VAT charges.
While these measures may not replace the value of relief for the hungry and the provision of efficient power supply or quality network services, they could go a long way in helping citizens support themselves during the lockdown.