Amidst liquidity crunch that has seen all the 36 states of the federation slash their 2020 budgets by over N3 trillion, the state governments may have to also sacrifice part of their tax revenue as reliefs to businesses and individual taxpayers in the country.
This, however, comes with a reward of $2.5 million for each state under the Federal Ministry of Finance Budget and National Planning (FMFBNP) World Bank’s $750 million States Fiscal Transparency, Accountability and Sustainability (SFTAS) Programme for Results.
This was the outcome of weekend’s virtual meeting held under the SFTAS Programme for Results, which was organised by the World Bank and the Nigerian Governors’ Forum (NGF). Already, the move, which is aimed at engendering quick economic recovery, has seen some of the states introducing tax relief programmes to mitigate the unending toll of the COVID-19 pandemic on businesses and individual taxpayers.
The relief programmes, which were initiated in states across the board, have focused on five main tax activities, including extension of filing and payment dates, tax moratoriums, waivers or reduction of penalties and interests over the extension period.
While some states are also offering rebates or discounts on taxes paid within a specific period, others are allowing the payment of taxes, fees and levies, among others, in instalments. In the same vein, states’ tax offices are now enabling filing and the issuance of tax clearance certificates electronically (online).
Various state governments had, in the wake of nationwide lockdown to contain the spread of the coronavirus pandemic in the country, offered tax reliefs to business operators and individuals to mitigate the effect on their businesses. Lagos State government, for instance, granted three months extension of deadline for filing of annual returns by business organisations.
This was for a period of March 31 to June 30, 2020. Later, the Executive Chairman of Lagos State Internal Revenue Service (LIRS), Ayodele Subair, announced additional tax incentives as part of measures to mitigate the impact of the coronavirus pandemic on Lagos taxpayers.
These included instalment payments of outstanding liabilities to ease cash flow challenges; waiver of penalty for late payment of liabilities under pay-as-you-earn (PAYE) scheme that were due during the March to May lockdown; waiver of penalties due to late filing of 2020 annual returns (Form A); waiver of interest and penalty of outstanding tax audit liabilities from 2000 to 2015 for entities that present and keep to a structural payment plan that ends on or before December 31, 2020
Abia State government, on its part, granted 25 per cent waiver/discount on small scale industries/artisans (PAYE and all forms of personal income taxes/ direct taxes), who make payment for past three years arrears. Acting Chairman/ Chief Executive, Board of Internal Revenue, also announced 20 per cent waiver/ discount for payments in August 2020 and 15 per cent waiver/discount for payments in September.
The state government equally reduced tax clearance certificate (TCC), capital gains tax and payments for Certificate of Occupancy (CofO) for urban and rural areas. In Kaduna State, the board of internal revenue said taxpayers subject to presumptive tax would enjoy a four-month grace period, from June 1 to September 30, to enable them recover from the effects of the lockdown.
KADIRS executive secretary, Zaid Abubakar, said the incentives was in accordance with sections 95 (1) and 127 of the Kaduna State Tax (Codification and Consolidation) Law, 2016. “Penalties and interests that hitherto would accrue for late filing of returns have been waived for the period of the extension.
“Filing of Annual Tax Returns within the extended period shall be deemed to be within the statutory timeline and shall attract one per cent rebate on tax due,” Abubakar said. Private school owners also enjoy a grace period of six months, from April 1 to September 30.
The SFTAS experts at the webinar concluded that such waivers for businesses are no longer optional, but have become an essential element of governments’ stimulus-targeted packages to facilitate recovery for businesses which face liquidity crises, and individuals whose livelihoods have been adversely impacted by the COVID-19 crisis.
Incentivised by a new Disbursement Linked Indicator (DLI), eligible states will be rewarded with $2.5 million each in performance- based grants if they announce by 31st July 2020 and implement by 30th September 2020 a tax compliance relief programme for individual taxpayers and businesses to mitigate the COVID-19 impact. Incidentally, the state governments are themselves currently experiencing a liquidity crisis of their own; and with limited capacity to borrow, it has become imperative that they find a balance between granting tax reliefs and maintaining revenues at a sustainable level.
The extent to which government revenues will be impacted by these reliefs will depend on the type of relief that they grant and their ability to raise their tax efforts simultaneously, including offering incentives for greater tax compliance. Recall that the 36 states’ aggregate budget of N9.2 trillion earlier signed into law was recently revised by the individual states to N6.2 trillion as revenue dwindles.
The states rely heavily on the monthly allocation from the Federal Government and Internally Generated Revenue (IGR) to fund their budget. However, the slump in oil price means less money from the Federation Accounts Allocation Committee, while projections for IGR have also been shattered by the downturn in the economy.
The SFTAS virtual meeting gave state governments between July 31 and September 30 this year to implement the relief packages to qualify for the grant. The meeting was attended by participants from the 36 states of the country, including state commissioners for finance and Executive Chairpersons of State Internal Revenue Services.
A statement issued at the end of the meeting gave as condition for the grant, the publication of the tax reliefs on the state website and in national dailies to ensure widespread awareness amongst taxpayers.
“Furthermore, the state government should issue to their tax officials and collecting agents, guidelines for the implementation of the reliefs to ensure consistent execution by all and sundry,” the statement added.
Olanrewaju Ajogbasile, NGF’s SFTAS technical assistance, project, who addressed the meeting, promised that the secretariat will provide technical advisory to the states on the domestication of necessary reforms to meet the DLI and fiscal sustainability.
Ajogbasile noted that some states have followed the requirements of granting extension for filing 2019 annual returns and waiver for penalties and interests for businesses and individual taxpayers, others have gone further to waive other taxes, fees and levies for a specified period of time.
By Samson Akintaro and Onyekachi Eze,
New Telegraph Nigeria