Analysis of the relief package for small to medium sized businesses During the press conference on March 27, 2020 the Minister of Finance announced a relief package for small and medium sized businesses and we of Graves Schippers and Partners prepared an analysis of what this package will mean for you. According to the Minister, the goal of the relief package is to increase cash flow for the businesses. The measures are applicable for the months April, May and June. Please note that March still have to be paid in April.
Below we will briefly elaborate on these measures and analyze which effects it will have on the cash flow for the companies.
1. Extension of deadline payment taxes This measure only applies for tourism related business will help these companies temporarily with the cash flow, but the taxes will ultimately still have to be paid. The taxpayer needs to file a request with a simple report showing that there are cash flow issues. The tax declarations will need to be filed in time and the taxes needs to be paid after the restarting the activities in six terms.
Please note that the tourism related businesses are: Casino’s, Transport & Tour operators, Security, Cafés, Bars, Restaurants, Landscaping, Spa, Car Rentals, Travel Agencies, Watersports, Car wash, Laundry, Perfumeries, Jewelers, Clothing Stores, Shoe stores, Souvenir stores, Ground handlers, Employment agencies and Construction companies.
It’s not clear why some businesses are left out like for example the hotels and apartment rental companies, and one could easily argue that far more businesses on Aruba are (in)directly depended on tourism. Why are shoe stores tourism related???
2. Tourism related business does not pay employer contribution AOV/AWW With this measure, the employer gets a discount on the premium expenses. However, most employees are sitting home because of the rule: No work, no pay. With no pay, the premium AOV/AWW and AZV would be reduced already. So, it is only a discount if employees are still working and earning salaries. With no income for the tourism industry, this measure is not going to help the businesses much.
Concern: employees should realize that the employer’s contribution is a pre-levy for the income tax and social and sickness premiums that you owe. Now, if the employer does not have to pay these contributions, who will? Normally in the end the employee himself would have to pay these premiums in the income tax sphere. The Minister has not declared any reduction in the income tax sphere so I would advise every Aruban employee to be alert and request the Minister to elaborate on this. 3. Profit tax payment This extension of filing and payment of taxes results only in a temporary relief because the company will have to pay ultimately. Most likely the preliminary profit tax return will have to be filed before the last day of May 2020. This will give an extension up to November 30, 2020. One should realize that only businesses that have been profitable in 2019 will profit from this extension.
4. Delay payment arrangement for three months If there was a payment arrangement in place, this will be delayed with three months, which will help the cash flow. If the company has paid all its taxes in time, this will not influence its cash flow in any way.
5. Fine for non-payment or late payment has been eliminated This means that companies can pay late without being fined. This will help some companies with their cash flow, however without any revenues and any salaries: there are no taxes due.
6. Late payments: no interest charges This will not help to increase cash flow at companies at all. Only if tax assessments have been raised which the company still owes to the tax department, there will be a small discount for non-compliance. So basically, if the company has paid all its taxes in time, this will not influence the cash flow in any way.
7. Flexible payment arrangements • 24 months for individuals (min. AFL 100) • 24 months for enterprises (min. AFL 500) • 36 months for pensioners (min. AFL 75)
This is a measure meant for collecting any open tax balance, so this won’t influence the cash flow for any company in a positive way.
8. Debt relief for open tax balances • Prior to Dec 31, 2010: 75% discount. • From Jan 1, 2011 to Dec 31, 2014: 50% discount. • From Jan 1, 2015 to Dec 31, 2016: 30% discount. • From Jan 1. 2017 to Dec 31, 2019: 10% discount.
This is a measure meant for collecting any open tax balance, so on the short term this will only cost a lot of cash and in no way will it influence the cash flow for any company in a positive way and obviously does not apply on companies that have previously complied with their tax obligations: non-compliance is being awarded by the government.
9. Dividend tax reduced This measure was announced as part of the fiscal reform. Since dividend tax was already a 10% pre-levy (15% within the income tax of the receiver), this does not influence the cash flow for any business.
10. Amnesty on tax debt If a company did not declare the taxes like it should have, the company can apply for amnesty on its tax debt. So, this is another example where tax-non-compliance is being rewarded by the government (since this amnesty will not lead to fines). But above all its just a way for the Government to easily collect more taxes and therefore does not help any business.
11. Delays in liens No lien will be put on open tax balances for now for collecting purposes. This will not influence the cash flow positively if the company has paid its taxes in time. Will the Government also lift the liens that already exist? That should help some businesses during these times.
12. Delay in tax audits The tax authorities will delay the tax audits. One should ask the Minister to explain how this helps any business economically.
13. Online service improved The online services of the tax department (BoImpuesto) has been improved. This ‘measure’ does not influence the cash flow of companies.
14. More transparency of information on social media More information will be shared via social media platforms. One should ask the Minister to explain how this helps any business economically.
Conclusion: The announced measures will only have a VERY limited positive influence on the cash flow of companies. We feel that most likely the measures are actually meant to accelerate and increase the tax collecting. For any hard-hit companies such as tour operators, no financial help is being offered at this point of time.
When implementing measures to aid business on Aruba, one should consider the following: 1. Target the group directly: give a relief on taxes owed immediately and directly by the target (group). For example, banning the BBO/BAVP/BAZV for 6 months. 2. Take definite measures: an extension most likely won’t really help, it just delays the pain. 3. Keep it simple: above we have explained the issues that will arise in the income tax as a result of the relief for employers. I’m sure the Minister has not yet thought about how to coop with this in the income tax next year when the income tax returns are filed. 4. Be clear: many have called/ asked how it will be determined whether or not a company falls under the exempted group of businesses. Will it be determined based on the chamber of commerce registration or on the practice of the company, and what if a company has various kinds of activities? 5. Avoid discrimination: preferably one should target all businesses as one instead of making selections with special measures. The more you categorize, the more it complicates.