LCCI recommends suspension of new VAT rate, tax break for key sectors

The Lagos Chamber of Commerce and Industry (LCCI) has recommended that a national plan of action, suspension of the new VAT rate as well a year tax break for healthcare companies, airlines, manufacturers and SMEs should be adopted in a bid to jumpstart Nigeria’s economy from the effects of the COVID-19 lockdown.

LCCI, in a survey signed by the Director-General, Muda Yusuf, said that so far, the lockdown imposed due to the COVID-19 pandemic affected 81 per cent severely, while 17 per cent indicated a moderate impact on their business.

The survey captured business operators across various sectors of the economy including food processing, agriculture, financial services, professional services, ICT, exports, trade and freight forwarding.

“Additionally, the lockdown had a severe impact on over 50 per vcent of businesses in the services sector. The profound impact on the services sector is a result of lower demand for services by individual and corporate clients. During the lockdown, clients prioritized food and essential items ahead of ‘relatively less important’ services and corporate clients ran skeletal operations, which depressed demand for {non-essential} services.”

According to the report “majority of the respondents (64%), lost about N500, 000 and below daily during the lockdown, while 16 per cent indicated a loss of between N 1million and N2million. About 20 per cent of businesses indicated a loss of N2 million and above daily during the lockdown.

“A conservative assumption of sampled business operators said they lost an average of N500, 000 each day during the lockdown, suggesting that each operator lost N17.5 million within the five-week lockdown (March 31 to May 3, 2020).”

This modest estimation indicated that about N2.7 billion was lost in revenue by sampled businesses (n=153) to the lockdown. This translates to trillions of naira losses for thousands of businesses operating in Lagos

“Our findings showed that selected business operators are weighing different cost-cutting strategies to help minimise losses and stay afloat in the post-pandemic era. Majority of the respondents (63 per cent), plan to downsize operations to minimise losses.

“This is not surprising as businesses have not generated income over a five-week period and have lost trillions of Naira in profit due to lockdown. This suggests that the unemployment rate is expected to increase drastically in the post-lockdown era, except government takes urgent steps to support business owners towards surviving and ensuring business continuity.”

The survey added that, most of the respondents (46 per cent) intend to slash salary and reduce the workforce as a joint measure; 24 per cent plan to cut personnel cost only. 13 per cent intends to trim staff strength only, while 17 per cent have proposed no salary payment.

“Cost-cutting strategies, particularly downsizing has implications for the economy from unemployment and productivity perspectives. First, it will exacerbate the already-high level of unemployment as more and more workers risk impending job losses. This may see the unemployment rate surge to between 40 per cent – 45 per cent by end-2020 from 23.1 per cent as at Q3-2018.

“Additionally, the potential risk of huge job losses will aggravate the magnitude of stagflation (high unemployment + high inflation + low growth) in the economy. This has ripple effects on the Gross Domestic Product (GDP) given that private consumption by households accounts for about 60 per cent of national output.”

The report stressed that, “the private sector should develop a platform to harmonise initiatives and actions. The platform should support the government, in policy design, implementation, and evaluation of the effectiveness of responses.”