Nigeria’s Economic and Fiscal Response to the COVID-19 Pandemic

On January 30 the World Health Organization formally declared the outbreak of the novel coronavirus a global public health emergency. According to the European Centre for Disease Prevention and Control, as of April 14 there had been 1,873,265 confirmed cases of COVID-19 globally resulting in 118,854 deaths.¹ More than 170 jurisdictions have recorded confirmed cases since the outbreak of the virus.² The rapid spread of the coronavirus across the world has caused a wave of disruption unlike any seen before. Health systems are being stretched to the limits. On a broader level, the economic impact of the virus and the global response to it are taking their toll on governments, businesses, families, and individuals across the world. This has prompted many governments, including Nigeria’s, to introduce special fiscal, monetary, and economic measures to ameliorate the impact of the pandemic on taxpayers and save their economies from collapse.

The Central Bank of Nigeria’s Response

The Central Bank of Nigeria (CBN) introduced policy measures valued at NGN 3.5 trillion (approximately $927 million) in response to pandemic-related economic concerns. These include:

• a one-year moratorium on CBN debt repayments as well as a reduction in interest rate on CBN loans from 9 percent to 5 percent;

• the creation of an NGN 50 billion targeted credit facility for households and micro, small, and medium enterprises (MSMEs) affected by the outbreak of COVID-19; and

• NGN 1 trillion in loans to boost local manufacturing and production across critical sectors.

The CBN has also pledged NGN 100 billion in credit support for pharmaceutical companies and healthcare practitioners seeking to expand capacity or to procure the raw materials and equipment that are needed to boost local production of drugs and medical supplies.

Finally, the CBN has granted regulatory forbearance to depository banks to enable the temporal and time-limited restructuring of terms for loan facilities for those businesses and households most affected by the outbreak of COVID-19, particularly in the oil and gas, agriculture, and manufacturing sectors.

To improve the CBN’s foreign currency supply, oil companies and oil servicing companies have been directed to sell foreign currency to the CBN rather than the Nigerian National Petroleum Corp.

Federal Government Stimulus Package

The Nigerian government has also put in place a stimulus package to help Nigerians deal with the economic disruption caused by COVID-19, including the drop in oil prices. Elements include:

• the establishment of a NGN 500 billion COVID-19 crisis intervention fund to upgrade state health facilities and establish a special public works program;

• granting Nigeria’s Centre for Disease Control access to a $90 million regional disease surveillance systems facility from the World Bank;

• direct intervention to the tune of NGN 102.5 billion in the healthcare sector;

• a NGN 10 billion grant to the Lagos state government to increase its capacity to contain the outbreak;

• the review of the 2020 federal budget with the goal of cutting or delaying nonessential capital spending by NGN 1.5 trillion (nearly 1 percent of GDP); and

• the withdrawal of $150 million from the Nigeria Sovereign Investment Authority’s stabilization fund to augment the fiscal allocation available for sharing among the three tiers of government in June 2020.

Emergency Economic Stimulus Bill

An emergency economic stimulus bill has been submitted to the parliament for consideration. The bill aims to protect jobs and alleviate the financial burden on citizens stemming from the economic downturn caused by the outbreak of COVID-19 disease. The bill tries to protect employees from loss of jobs by granting relief to Nigerian companies that retain all their employees from March 1 to December 31, specifically a 50 percent income tax rebate for either the actual amount owed or the amount paid as pay-as-you-earn tax under the Personal Income Tax Act 2004 (as amended).

Also, import duties on medical equipment, medicines, and personal protective gear necessary for treating and managing COVID-19 have been suspended for three months effective March 1. Protective gear like face masks, hand sanitizers, and soap has become a basic need. Consumers may benefit from the suspension of import duties because the price of these products may reflect the change, and it may make essentials more affordable to the public.

Federal Inland Revenue Service Response

Like other revenue authorities around the world, the Federal Inland Revenue Service (FIRS) has come up with ways to respond to the pandemic and make it easy for taxpayers to comply with the tax laws. Some of these measures include:

• extending the deadline for filing VAT and withholding tax returns from the 21st day to the last working day of the month following the month of deduction;

• extending the due date for filing of companies’ income tax (CIT) returns by one month; and

• allowing taxpayers to file tax returns without audited financial statements, but the audited statements must be filed within two months from the revised due date for the initial filing.

Our Recommendations

Reduction of Tax Rates

Because most companies’ profitability will be affected by the pandemic, the FIRS should consider other measures that can better shield the taxpayers from the pandemic. Some tax administrations have announced tax reductions. The Kenya Revenue Authority, for example, announced 100 percent tax relief for persons earning gross monthly income of up to KES 24,000 (approximately $240), a reduction of the top pay-as-you-earn rate from 30 percent to 25 percent, and a reduction of the VAT rate from 16 percent to 14 percent. The FIRS and other relevant tax authorities should consider a similar approach to provide relief to businesses and individuals that would typically have met their tax filing obligations but for the impact of the COVID-19 pandemic.

Also, the FIRS may consider reducing the CIT rate for the 2020 financial year to give businesses some latitude with their working capital and, ideally, allow them to invest a portion of their profit back into their businesses.

Flexible Payment Plan for Business Taxpayers

Realistically speaking, many companies will face liquidity issues as a result of the pandemic. The FIRS might consider granting taxpayers a flexible payment plan for CIT, perhaps one allowing them to spread payment over six months from the filing deadline.

Transparent Disbursement

The key objectives of the CBN’s special credit facility are to cushion the adverse effects of COVID-19 on households and MSMEs; to support households and MSMEs if their economic activities have been significantly disrupted by the pandemic; and to allow MSMEs to expand their productive capacity through equipment upgrade as well as research and development. While offering the various COVID-19 funds is commendable, it is important that they are disbursed as quickly, appropriately, and transparently as possible to ensure they achieve the desired effects.

For instance, to apply for the funds, MSMEs must submit applications to NIRSAL (a microfinance institution wholly owned by the CBN) that include a business plan and present clear evidence of the lost opportunities or other adverse impacts stemming from the pandemic.

NIRSAL will appraise the application and conduct a due diligence investigation. If the bank deems the application satisfactory, it will forward the applications to the CBN for final review, approval, and (finally) the disbursement of funds to successful applicants. Completing this process will clearly take weeks — if not months. The government should consider eliminating bottlenecks that might make it difficult — if not impossible — for households, traders, and small income earners to access the funds in a timely manner.

Conclusion

While granting waivers and extension of filing deadlines to taxpayers may affect tax revenue collection in the short term, it is indeed helpful to taxpayers to give them ample time to file their returns. Because the nation’s finances will be under enormous strain during this period, it is important that the FIRS also introduces other policies intended to ensure increased compliance and improve domestic revenue mobilization.

Thus far, the government has done a commendable job in its effort to contain the pandemic. However, it should be prepared to rethink its development strategies, models, and policies to meet new development priorities and develop alternative methods to stimulate the distressed economy.