Deferred tax payments more costly than expected
In connection with the COVID-19 pandemic, companies were given – as a crisis measure – the opportunity to defer 12 months of tax payments for up to five years. While the support has had several positive effects, it will be more than SEK 7 billion more costly than expected. In addition, it has had no apparent effect on the number of bankruptcies.
The Swedish National Audit Office has examined the measure of temporary deferral of tax payments, which the Government proposed and the Riksdag decided on during the COVID-19 pandemic.
The overall conclusion of the Swedish National Audit Office is that the support has been a relatively effective measure that led to increased liquidity in the business sector during the pandemic and the years that followed. The fact that deferrals granted in 2023 were largely granted to companies with high electricity costs was also in line with the Government’s intention.
However, the support had some shortcomings. The purpose of the deferrals was to make it easier for fundamentally sound and viable companies that were experiencing temporary liquidity problems. The audit shows that companies that were least viable even before the pandemic are over-represented among recipients of the support. There is also no evidence that the support has counteracted bankruptcies.
“The deferrals eased the situation for many companies during the pandemic, which has also been positive for the business sector in general. However, in terms of counteracting bankruptcies, we do not see any measurable effects,” says Anna Brink, project leader for the audit.
The Swedish National Audit Office also notes that the costs for the support have been significantly higher than the Government anticipated. At the time of introduction, the net cost was estimated to be SEK 2.6 billion over the 2020–2027 period, but the Swedish National Audit Office’s calculations show that the final cost will rather be about SEK 10 billion.
“Many companies had poor financial conditions even before the pandemic. In addition, in some cases, the support went to unscrupulous companies that never intended to pay back the tax. These risks were not factored into the Government’s analysis,” says Auditor General Christina Gellerbrant Hagberg.
The scope of the support was expanded in several steps, increasing the risks of misuse and the central government’s cost of unpaid taxes. An undesirable consequence of the support was that it partly replaced banks’ corporate lending.
“Our assessment is that this type of support should only be used when the banks’ lending is not functioning properly, and that the deferral option should therefore not have been extended after 2021,” says Auditor General Christina Gellerbrant Hagberg.
Recommendations in brief
If temporary deferral of tax payments were to be introduced in any future economic crises, the Government should:
- limit the possibility of obtaining a deferral to periods of time when the credit market is not functioning normally
- limit the scope of the deferral to a few reporting periods
- consider clarifying the grounds for not granting a deferral
- consider whether the deferral fee and interest should be charged on an ongoing basis
- improve the calculation of expected collection losses and account for the risks associated with tax credits.
Temporary deferral of tax payments as a crisis measure
Temporary deferral of tax payments was used as a crisis measure during the COVID-19 pandemic and the years that followed, which featured high energy prices and high inflation. The purpose was to make it easier for fundamentally sound and viable companies that were experiencing temporary liquidity problems. All companies could apply and the Swedish Tax Agency only rejected applications if there were special grounds. Companies could initially receive a deferral for three months of employer’s contributions, tax deductions and value-added tax, but deferrals were gradually expanded to twelve months of taxes. Initially, the deferral period was one year, but this was extended to two years plus a repayment period of three years. Between 2020 and 2023, 63,472 companies were granted deferred tax payments amounting to approximately SEK 111 billion. The last deferrals will expire at the beginning of 2028.
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