Which Approach To Government Palliative Measure Is More Appropriate, Wage Subsidy Or Tax Rebate? – By Oyedele Nurudeen

Owing to Covid-19 pandemic, various economic activities have been disrupted and government of affected countries has been triggered to implement lock down and stay at home policies in their various countries, in order to curb the spread of the virus. This has consequently affected the revenue of all companies while some were able to implement work from home policy, some company could not really work from home and accordingly all activities have been put on hold. Hence, government has to implement measures to ease the effect of lockdown on its citizens by means of providing palliatives measures.

We have seen different approaches or forms of palliative measures provided by different government. However, I will be focusing on two different approaches and its effectiveness. Wage subsidy or Tax rebate?

Wage Subsidy

As the name implies, is a measure where wages paid by employer to employee is being subsidize at a certain percentage by the government to ease the burden on companies if some conditions established by the government are met. For example, Singapore currently subsidize up to 75% of wages for firms in all sector. However, how effective do you think the wage subsidy would be and to what end do you think the government introduced such measure?

 This will ease the burden of wage cost on employers.

 Companies will be reluctant to lay off its employees in order to enjoy the scheme

 Wage subsidy is a form of fiscal policy in the sense that, employees get paid as at when due and prevent employers from owing salaries

 It has a direct and immediate effect on employees

 This measure will only capture the formal sector while the informal sector will be left out.

 Employers might choose not to opt in for the scheme for some reasons.

 The wage subsidy will still be subject to tax and citizens might view it as a give and take practice.

Tax Rebate

This measure is introduced by the government to issue a refund of tax paid by companies if some certain conditions given by the government are met. Such instance is that of the Nigerian government palliative measure contained in a bill passed by the National Assembly “emergency economic stimulus bill 2020”,in response to covid-19, the bill primarily seeks to protect employees from loss of their jobs by granting income tax relief to the value of 50% income tax rebate on the total actual amount due or paid as pay-as-you-earn (PAYE) under the Personal Income Tax Act, 2004 (as amended) to companies, which maintain their payroll cost as of 1 March 2020 till 31 December 2020. A company will not be excluded from benefiting from this relief if there is a reduction in number of employees due to death arising from natural causes, voluntary disengagement, or disengagement by virtue of a breach of the Labor Act Cap L1 LFN 2004.

 Employers will be encouraged to keep their employees with the aim of accessing the tax rebate.

 Employees who could not work or who are currently working remotely will receive their pay which will further reduce the effect of the lockdown.

 Employers might choose not to opt in for the scheme for some reasons.

 This approach does not have an immediate effect as companies will have to wait for a period of time specified by government before they could access the rebate.

 Employees might be lay off if the employer is uncertain about the reliability of the scheme. …………………………………………..

These two different measures have their advantages and disadvantages, however the determinant as to which is more appropriate lies on the intention of government for providing such measure and conditions put in place before anyone could access same. For instant, do the government intend to achieve immediate effect or not? Is the government trying to protect the employee or employer? And many more questions will need to be answered. Furthermore, looking at each measure will reveal some lapses. What if employers carry out a due diligence exercise and decide not to take advantage of the subsidy but instead decide to lay off its employees as this will result in lower cost? What is your take on this?