As Nigeria joined the rest of the world in grappling with the COVID-19 pandemic, the Federal Government declared a curfew in three major States of the Federation and restricted interstate travel nationwide. However, there has been an easing of the lockdown measures but safety measures are still being observed at places of work and the airports.
These developments have led to several organizations commencing remote working as precautionary measures against the spread of the coronavirus. The statutory, regulatory, and contractual obligations of many businesses have certainly been impacted by the pandemic. Depending on the sector where a business operates, there are a number of statutory obligations to be performed. Most of these statutory obligations are time bound and may attract penalties in the event of a default. For contractual obligations, the wording of a force majeure clause may offer respite to parties who can demonstrate that the pandemic has affected the performance of their contractual obligations.
The pending Economic Stimulus Bill 2020 proposes the provision of tax relief, suspension of import duty on selected medical goods, and deferral of residential mortgage obligations. These measures are expected to protect jobs and alleviate the financial burden on citizens in response to the economic downturn occasioned by the outbreak of the pandemic. While the Economic Stimulus Bill has not been passed by the Senate, the President of the Federal Republic of Nigeria has given some directives, including a three-month payment moratorium on government funded loans and negotiation of concessions for on-lending facilities from international and multilateral development partners. However, these directives do not provide answers to the concerns of many businesses affected by the pandemic.
In this article, we examine some of the issues businesses are being confronted with and recommend legal and business strategies that will mitigate the impact of the pandemic.
Labour & Employment
According to the International Labour Organization, the outbreak of the pandemic could lead to the loss of up to 25 million jobs. Employers whose businesses have been negatively impacted are considering whether to declare redundancy, while also looking into possible alternatives to retain and keep staff. Aside from a declaration of redundancy, some of the key issues being considered in Nigeria by employers include:
1. Whether the pandemic event can be interpreted as a force majeure event absolving the employer from its employment obligations or whether the employer can rely on the doctrine of frustration to avoid such obligations.
2. Compulsory leave and non-payment/reduction of salaries for an extended period despite the provisions of the Nigerian Labour Act.
3. The involvement of the Federal Ministry of Labour & Productivity with respect to negotiations with some classes of employees.
4. Regulations for remote working and the extent of the employer’s vicarious liability.
5. Government palliatives for retrenched employees.
6. The likelihood of courts’ interpretation of renegotiated employment terms as being unfair clauses and being unenforceable.
In order to mitigate risks and liabilities that may be associated with dealing with these labor & employment issues, it will be necessary to seek legal advice regarding the best course of action for an employer in these unprecedented times.
The pandemic has heavily impact e-commerce transactions and consumer spending. Recent reports in July 2020 show that there have been several exits and divestments of operators in the e-commerce subsector.
Financial technology companies in the payment systems space are also positioned for a drop in revenues, negatively impacting their profitability and valuations. For instance, VISA and MasterCard have warned shareholders about a projected sharp slowdown in cross-border business and travel-related spending. Some other areas for consideration for technology companies include:
1. Lending Risks
Among FinTech companies, those lending money to average Nigerians may be facing the biggest risk. Borrowers may not be able to meet loan repayment obligations if economic activities are not being carried out. Therefore, such financial technology companies are advised to seek legal advice on how to navigate such outstanding repayment obligations in order to remain viable.
2. The Rise of Telemedicine
With the pandemic, there is a transition to a new model of remotely delivered healthcare. With imminent lockdown and people needing medical attention, focus has been shifted to telemedicine.
3. Remote working and investing in technology
Due to the lockdown in different parts of Nigeria, traditional brick and mortar organizations have been constrained to shift to remote working. These developments would not have hampered the operations of most FinTechs and technology companies as they already had a flexible approach to work with the right infrastructure in place compared to traditional organizations. Other companies are however forced to patronize a number of technology companies in order to upgrade to the use of teleconferencing, telehealth, and other tech-enabled services. This is likely to result in technology and FinTech companies flourishing post the pandemic as companies that invested in those facilities may continue to use them when the crisis is over.
Banking & Finance
Lenders and borrowers will need to consider their rights and obligations under their facility documentation to determine how these will be impacted by the pandemic. Some issues to be considered include:
1. Whether any information undertaking under their facility agreement is triggered, especially in relation to the business and operations of the borrower. For example, an information undertaking to notify a lender where the profit margin of the borrower falls below a stipulated threshold may be triggered where the pandemic impacts the revenue of the borrower. It is important to seek legal advice and to ensure that such notifications are given within the notice period stipulated by the facility agreement to avoid a breach of contract.
2. The pandemic will impact the ability of some borrowers to meet their obligations under facility agreements including but not limited to their repayment obligations and financial covenants. It is advisable for such borrowers to seek a renegotiation of terms before an event of default occurs. The CBN has issued policies in response to the pandemic and has granted all deposit money banks leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses most affected by the pandemic. Some restructuring options include obtaining a moratorium on interest payment obligations or relaxation of certain financial covenants. As the Naira’s value relative to the US dollar is being adjusted, Nigerian borrowers earning mostly in Naira but with FX repayment obligations should carefully consider their position.
Regulatory bodies are aware that the pandemic has affected regulatory compliance. Therefore, some regulators have issued guidelines, circulars, and regulations to ease the burden on corporate organizations. For example:
- The Lagos Internal Revenue Service (LIRS), Federal Capital Territory Internal Revenue Service (FCT IRS), and the Federal Inland Revenue Service (FIRS) extended timelines for filing of tax returns.
- The Corporate Affairs Commission issued regulations permitting members of public companies to attend Annual General Meetings by proxy.
- The Trademarks Registry issued a circular extending the timelines for taking statutory steps regarding the Trademarks Journal published in February 2020.
- The Securities and Exchange Commission (SEC) extended timelines for capital market operators to file 2019 annual reports and first quarter reports for 2020.
- The National Information Technology Development Agency extended the deadline for filing of audits by Data Protection Compliance Organisations.
- The SEC and the Federal Competition and Consumer Protection Commission are also reviewing their processes to enable electronic filing of sensitive and urgent applications/notices.
- The Central Bank of Nigeria (CBN) granted CBN intervention facilities availed through participating OFIs, a further one-year moratorium on all principal repayments, effective 1 March 2020.
- The CBN has reduced the interest rates on the CBN intervention facilities through participating OFIs from 9% to 5% per annum for 1-year, effective 1 March 2020.
- The FIRS extended the deadline for submission of 2019 financial accounts reports under the Common Reporting Standard (“CRS”) to 30 September 2020;
Navigating regulatory compliance glitches (given the current realities of the pandemic) requires collective efforts from regulators and business entities. Also, depending on the sectors where various businesses operate, it is advisable to conduct an audit of the compliance obligations in the specific sectors so as to identify the obligations that have been impacted by the pandemic and seek legal guidance on navigating the challenges that may result.
The House of Representatives passed the Emergency Economic Stimulus Bill 2020, which provides that employers (with the exception of oil companies) who retain the same employees from March 1 2020 until December 31, 2020 will enjoy a 50%-income tax rebate on the total PAYE amount due or paid. However, the Bill, which is currently pending before the Senate, may not achieve the desired effect of incentivizing employers to retain all their employees if the COVID-19 disruptions continue to negatively impact revenue. As such, taxpayers would expect that additional emergency tax measures would be introduced. However, in light of dwindling oil revenues, low external foreign currency reserves, and the resulting need to generate tax revenue, it is unclear to what extent the government would be willing to introduce measures that would effectively mitigate the impact of COVID-19. Taxpayers should therefore seek tax advice on the options to mitigate the impact of COVID-19 on their operations.
In addition, taxpayers are seeking deferral of tax payment and filing obligations. FIRS has deferred some of these obligations and extended the timeline for filing companies income tax (“CIT”) return (and by extension, transfer pricing returns) by one month. The CIT return may be filed with unaudited accounts, but the audited accounts must be filed within two months. In addition, the deadline for filing VAT and withholding tax (“WHT”) returns has been extended from 21st to the last day of the subsequent month of a relevant transaction. It is unclear whether the obligation to remit VAT and WHT will enjoy the same extension. Furthermore, taxes required to be paid in foreign currency can be paid in Naira at the prevailing rate at the Investors & Exporters FX Window on the day of payment.
The LIRS and the Federal Capital Territory Internal Revenue Service FCT-IRS extended the deadline for filing annual personal income tax/PAYE returns (due March 31) by 2 and 3 months respectively. However, the LIRS and the FCT-IRS did not extend the deadlines for filing monthly PAYE return (10th day of every month) or the deadline for filing WHT return.
It must, however, be stated that whilst it may be expedient for the tax authorities to defer tax payment and filing obligations, any extension of an obligation by a tax authority would be void if the relevant tax legislation imposing the obligation does not empower the tax authority to defer the obligation. As a result, taxpayers should seek advice on the legality of deferral of tax obligations by tax authorities.
In addition, via a public notice issued on 9 July 2020, the LIRS introduced the following additional measures to ease the impact of COVID-19:
- Allowance, on a case by case basis, of payment of outstanding tax liabilities in installments.
- Waiver of penalty on late payment of liabilities due in March to May 2020 under the PAYE scheme.
- Waiver of penalty due on late filing of 2020 annual tax returns.
- Tax credit of 20% for COVID-19 donations made to the Lagos State Government for the 2021 year of assessment, subject to a cap of 35% of tax due.
- Adoption of video conferencing as the default mode for Tax Audit Reconciliation Committee meetings.
- Waiver of interest and penalty for outstanding tax liabilities from 2009 to 2015 for entities that pay outstanding tax liabilities under a structured payment plan on or before 31 December 2020.
The disruptions caused by the pandemic do not suspend tax obligations. Given that the penalty and interest for non-compliance with tax obligations are very substantial, taxpayers should seek advice on how to manage their tax obligations in light of the pandemic.