Temporary deferral of tax payments

The Swedish National Audit Office considers that, in some respects, the targeting of the measure has been relatively accurate. The measure quickly increased liquidity in the business sector during the pandemic. This facilitated companies’ ability to pay wages and trade payables. The audit also shows that the deferrals granted in 2023 largely went to companies with high electricity costs, in line with the intention.

However, the Swedish National Audit Office considers that, in another respect, the targeting of the measure has not been as accurate. The temporary deferrals were intended to support fundamentally sound and viable companies that were experiencing liquidity problems. What defines a “sound and viable company” is not clear. The Swedish National Audit Office has interpreted this as a company that is profitable and with a solid long-term ability to make payments. The audit shows that companies with both low profitability and poor solvency before the pandemic are clearly over-represented among those that were granted temporary deferrals. This may, in some part, be due to the fact that no creditworthiness assessment equivalent to that performed for bank loans was required to obtain a temporary deferral.

The audit shows that the measure has reduced companies’ financial difficulties, but we find nothing to indicate, up to September 2024, that it may have prevented bankruptcies.

Moreover, the audit findings suggest that, in some part, the deferrals have displaced banks’ corporate lending, which was not in line with the objective of the measure. The displacement may be due to the fact that, in 2020, the credit cost of temporary deferral was low – lower than the average market interest rate. It was low because no deferral fee was charged until after six months of deferral. However, this rule has been amended.

The Government estimated that the temporary deferrals would cost public finances a net amount of SEK 2.6 billion. The interest on the tax due and the deferral fee would largely compensate for the central government borrowing cost and increased collection losses. The audit shows that the net cost will very likely be significantly higher. We cannot predict with certainty how large the net cost will be, but SEK 10 billion is a more reasonable estimate.

For the Government’s calculations to balance, the deferrals must have prevented a large number of bankruptcies, which we have not found support for in our audit. The Government’s assessment did not take into account the fact that companies that applied for deferral were in a worse financial situation even before the pandemic, and may also have been hit harder by the pandemic, the high electricity prices, high inflation and the recession compared with other companies. Interest and the deferral fee have not compensated for this.

The possibility of having large amounts disbursed from a company’s tax account has made it attractive to misuse the deferral scheme. The audit shows that the Swedish Tax Agency has established sound procedures to prevent unscrupulous companies from being granted a deferral, but that the Swedish Tax Agency’s systematic efforts concerning risk sampling were launched later than desirable.

The procedures for revoking deferrals are of minor importance in preventing misuse. This is because it is difficult for the Swedish Tax Agency to recover money once it has been paid out to unscrupulous companies.

The possibility of temporary deferral is a general measure to improve liquidity without a normal creditworthiness assessment. Consequently, companies that would not be able to pass a bank’s creditworthiness assessment have been granted a considerable deferral over a long period of time, which has affected the cost of the measure to the central government. This underscores how important it is that temporary deferral of tax payments should only be granted when the credit market is not functioning normally. Some adjustments to the regulatory framework may also need to be made to make the measure more effective, should the possibility of deferral be reintroduced in any future crisis.