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Post-lockdown: SMEs fall as bills, taxes rise

As the year 2020 began, operators of Small and Medium Enterprises (SMEs) had no inkling that they will face the doomsday, three months into the…

As the year 2020 began, operators of Small and Medium Enterprises (SMEs) had no inkling that they will face the doomsday, three months into the year.

However, that was what happened with the Coronavirus (COVID-19) pandemic.

The pandemic set in late February 2020 and by late March, it had become intense, forcing President Muhammadu Buhari to declare a total lockdown of Lagos, Ogun and Abuja, the critical economic hubs.

Markets, businesses, religious centres, recreational centres and restaurants were all closed with the full lockdown extending to nearly three months.

Some states like Kaduna, Kano, Rivers, among others also had some form of lockdowns from mild to extreme, while they recorded increased cases.

With the businesses shutting down, except for essential duties and freight haulage especially for food items, many entrepreneurs went down in their activities.

  • Statistics

According to the data from the Central Bank of Nigeria (CBN) on the Purchasing Managers Index (PMI) in September, the manufacturing sector growth slumped for the fifth time.

The manufacturing PMI stood at 46.9 index points from 48.5 points recorded in August, indicating contraction in the manufacturing sector.

That was the fifth month, mostly during the heat of the pandemic.

The employment level index for September 2020 stood at 44.1 points, indicating contraction in employment level for the sixth consecutive month.

Operators of the hospitality sector said they were the worst hit as many of them, especially in Abuja and Lagos, laid off staff while others put their staff on half pay for over three months.

Despite these plights, multiple taxation and bills hike are fast becoming the new normal to business owners and workers in Nigeria.

The most recent were the electricity tariff hike which is over 100 percent, and the fuel price increase by over 50 percent.

  • Lamentations

Amidst this hit from the pandemic, scores of workers and entrepreneurs who spoke to Daily Trust decried the unabated rise in ‘forced’ taxes being levied on their struggling businesses.

They also lamented the effects of these tariffs on their pockets as their residual and business income had declined in the last four months rather than appreciate.

In February 2020, the Federal government raised VAT from 5 percent to 7.5 percent.

The 11 electricity Distribution Companies (DisCos) immediately activated that on the bills of over 10 million registered electricity users.

Inflation rate also increased by 13.22 percent in August, up from 12.82 percent recorded in July 2020, being the highest in two years.

The Consumer Price Index, which measures inflation, released by the National Bureau of Statistics (NBS) indicated a headline index increase of 1.34 percent in August 2020.

Analysis shows that the composite food index rose by 16.00 percent in August 2020 compared to 15.48 percent in July 2020.

“This rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fish, fruits, oils and fats and vegetables,” NBS explained.

Although the Presidency had said food prices were declining, the NBS data and the Minister of Finance, Budget and National Planning, Zainab Ahmed, had differed.

The “All items less farm produce” (or Core inflation) which excludes the prices of volatile agricultural produce stood at 10.52 percent in August 2020, up by 0.42 percent when compared with 10.10 percent recorded in July 2020.

The highest increases were in prices of air transport, hospital, medical services and products, fixing transport equipment, vehicle and spare parts, road transport, among others.

A microfinance banker in Lagos, Mr. Aderemi Oluyemi, said the government was insensitive to the plight of the people especially during COVID-19 when it was supposed to give palliatives to the people and that its action was putting pressure on the economy.

“For the past four months, there has been 20 percent cut to my salary, yet the government is increasing the burden.

“Even the prices of food items are rising day by day, cost of transportation in Lagos is very high, particularly with the social distancing directive of the government,” Oluyemi said.

A staff of Air Peace Airline, Mr. Kabiru Ojo, said he suffered over 40 percent pay cut as a result of COVID-19 pandemic, and can’t meet up with his responsibilities.

However, rising taxes and tariffs stare him in the face.

A journalist, Biola Yusuf, said his national newspaper was affected. “I have no salary from my employer, yet we work round the clock and we have families and ourselves to cater for.

It is really a terrible situation,” she lamented.

An Abuja-based Agribusiness Intervention worker, Damilare Agbele, lamented the impact of multiple taxation on his overall earning amidst the COVID-19 pandemic.

“My salary is primarily taxed (without any evident socio-infrastructure benefit enjoyed).

“I pay VAT on items purchased and services procured. Banks charge stamp duties on transactions and other unexplainable deductions on transactions,” he said.

Agbele also said prices of products and services (food and transportation especially) have increased considerably and at the end of the day, one is left with almost nothing to live on.

On coping with salary cuts, an aviation sector worker, Arhel Hena, said he got 80 percent salary cut due to COVID-19 effects.

“I also had to manage to pay my rent which was due in May.

“I would have been out there with people. It wasn’t funny at all. Aviation is the worst hit, and I know some companies that are also struggling to pay a token to their staff,” he said.

A 2020 survey released in June on over 1,600 Small and Medium Enterprises (SMEs) owners in 29 states revealed that the multiple taxes and levies remain a bane for tax-paying businesses in Nigeria, especially MSMEs.

The PricewaterhouseCoopers (PwC) survey showed that 49 percent of SMEs pay 20 to 40 percent of their income or profits on taxes and levies, while 28 percent of businesses pointed out that the local government charges, taxes and levies were the most difficult to comply with.

The survey covered over 1600 business owners across 29 states.

A shoemaker and CEO of Shoespeed Interglobal Services Limited in Lagos, Abiodun Folawiyo, said in developed countries like Italy where SMEs have electricity, good roads, access to funding and more, people do not mind when government charge exorbitant taxes because entrepreneurs know what government will do with it.

“But in Nigeria, the money they collect from us, you hear that someone stole N30bn.

“So, the tax they collect is not being translated to good use to provide infrastructure.”

Folawiyo said the government should give SMEs tax holiday instead. “They should declare a tax holiday for us and not tax us.

“Government should make Ease of Doing Business more attractive for us and foreign investors.”

Another entrepreneur in Abuja, Ekaette Umoh, said the government has no basis asking for various taxes without improving infrastructure for SMEs.

“Electricity is epileptic. The government has not fixed the road to make it more accessible, or improved on electricity so I don’t have to use a generator for 12 hours a day.

“And now when income is low because of the pandemic, only of God will help us,” she said.

The CEO of Dolphin Restaurant and Catering Services, Nneka Agbo, said consumers feel the impact of any tax.

“Basically, when we pay more taxes, the increment is directly transferred to customers such that it will impact on their perceived earnings and savings.

“However, the downturn for registered businesses such as ours will be that customers will now prefer to patronise substandard and unregistered eateries.”

  • Condemnations

Experts, manufacturers and other stakeholders in the Nigerian economy have condemned the incessant levies amidst the COVID-19 pandemic.

Most of them believe that key taxation that impales the pockets of Nigerians should have been shelved off during the pandemic until economic activities fully recover.

A market in Lagos on partial Lock-down in the heat of COVID-19
A market in Lagos on partial Lock-down in the heat of COVID-19

Mr. David Aku, an Enugu-based Economist, said it made no sense troubling citizens with so much taxes, levies charges, stamp duties and so on during a pandemic when the purchasing power is crippling.

“We should be driving policies to stimulate spending for economic activities to pick up. SMEs, and low-income earners should be tax exempted till January 2021.”

He also urged the FIRS to suspend the six per cent stamp duty on tenancy agreement till 2021 when the economy is projected to recover.

The National Coordinator, Progressive Shareholders Association of Nigeria, Boniface Okezie, said the tax system depletes returns on investment and subsequently triggers business collapse.

“This largely undermines efforts by capital market regulators to woo more companies to list their shares in the market, a move that will make investors have access to many investment opportunities and deepen the market,” he noted.

The embarrassing ways some of the taxation laws are enforced are the concern of the Manufacturers Association of Nigeria (MAN). The association said these taxes are characterized by the use of stickers, mounting of roadblocks, use of revenue Agents/Consultants including motor-park touts.

The Acting Director-General of MAN, Ambrose Oruche said: “We have situations where a taxpayer is faced with demands from two or more different levels of government for the same or similar taxes.”

Samson Simon Galadima, a Financial Economist, said the government has been angling for ways to shore up its revenue even before the salary cut.

“That’s how the Finance Act came about; however, the fall in the price of crude oil on the international market has made it the more urgent. Furthermore, the coronavirus-induced recession has worsened things.”

Also, Muhammad Ali, an Economics lecturer at Prince Abubakar Audu University, Anyigba, Kogi State, said revenue generation was receiving negative shock arising from the effect of the pandemic.

He called on the government to impose more tax on luxury items as this would not have an effect on prices of commodities that are necessities or goods and services that are mostly consumed by the poor masses.

On her part, SME Consultant and DG of Global Centre for Human Development and Entrepreneurship Development (GLOCHEED), Rose D. Gyar, said the government should not always rush to impose tax, instead it should block leakages.

“I don’t think the tax system should always think of impositions of programmes to increase the IGR, they should rather engage with stakeholders, especially operators, on how to block the leakages for a more effective tax regime.”

The Director-General of the Abuja Chamber of Commerce and Industry (ACCI), Victoria Akai, decried these multiple taxation and levies on small businesses.

“I know that there are a lot of complaints about multiple taxations, which I think the government should look at.”

Commenting on the inflation rate, an economist and a former Director-General of the Abuja Chamber of Commerce and Industry (ACCI), Chijioke Okechukwu, said he was not surprised that the inflation rate rose.

“This development is arising from the high exchange rate of the naira to other currencies.

“The ripple effect of this has adversely affected prices of goods and services and creating Cost Push Inflation,” he said.

  • ‘The way forward’

Okechukwu urged the Central Bank of Nigeria (CBN) to use monetary policy tools to ameliorate the pressure on foreign exchange and force the rate down.

Head, Research Investment Management at Sigma Pensions, Mr. Wale Okunriboye, said: “The surge in food prices over August, usually the start of the main harvest for many crops in Nigeria, provides strong evidence that farming activity and domestic food supply chains were adversely impacted by COVID-19 restrictions earlier in the year.”

Analysts at Vetiva Research, Mosope Arubiyi and Ibukun Omoyeni, noted that a cursory glance at selected food price watch data showed that 95 percent and 83 percent of the listed items were sold at higher prices in June and July respectively, lending credence to heightened inflationary pressures from higher fuel prices.

Housing, water, electricity, gas and other fuel (HWGS) inflation rose to a 30-month high of 8.13 percent y/y in August, they noted.

The Central Bank of Nigeria (CBN) said this month that it has so far disbursed a total of N418.5bn under the various intervention funds announced by it to stimulate the economy and mitigate the impact of the coronavirus pandemic on national development.

The Director, Corporate Communication of CBN, Isaac Okoroafor, relayed that in a television interview:

“From the N1tn announced to support manufacturing and agricultural businesses, N300bn has so far been accessed. N26bn has also been expended on 20 projects from the N100bn designated for healthcare intervention.”

Okoroafor also disclosed that the N50bn Targeted Credit Facility (TCF) as a stimulus package to support households and MSMEs that are affected by the pandemic had been exhausted, adding that 92,000 households benefited from the fund.

On the Agro-Business/Small and Medium Enterprises Investment Scheme (AGSMIES), the CBN said about 11,600 firms and small businesses had benefited from the disbursement of about N41bn, with about 169 entities accessing N1.5bn from the creative industry fund.

Also, it said it disbursed N69bn out of the N100bn fund it set aside for COVID-19 intervention to small businesses and households.

Still on providing interventions, the Federal Government recently in September, flagged off the N60bn Micro, Small and Medium Enterprise (MSME) Survival Fund and Payroll Support Scheme. During the official flag-off held in Abuja, the Minister of State for Industry, Trade and Investment, Ambassador Mariam Katagum, said the two schemes are part of the Federal Government’s N2.3trn Nigeria Economic Sustainability Plan (NESP).

Ambassador Katagum said the N15bn SMEs Guaranteed Offtake Scheme, which is still being fine-tuned, would take off soon.

Senior Assistant to the Vice President on MSMEs, Tola Johnson, said the scheme would start with the Payroll Support targeting 100,000 businesses and 500,000 beneficiaries for salaries ranging from N30,000 to N50,000.

Johnson said about 333,000 artisans and transport operators will get N30,000 grants to support them to reduce effects of income loss, starting from October 1, 2020.

The Fund would also be used to support 250,000 new businesses to formalise their business with the Corporate Affairs Commission.

The Director-General of Small and Medium Enterprises Development Agency (SMEDAN), Dr Dikko Umaru Radda, said the Survival Fund was a welcomed development to reduce the effect of COVID-19 on MSMEs.

This – as well as other measures – many SME owners spoken to by Daily Trust feel and agree, will go a long way in pushing entrepreneurs to rise, while dragging bills, taxes, and other costs to a fall.

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