COVID-19 and Economic Measures: the Government to Provide “Respirators” For the Economy

The gravity of the burden which the economy will have to face due to coronavirus is obvious, particularly when judging by the experience of other countries. The negative consequences of the pandemic will continue even after it is over, which inevitably leads to the need for state intervention on the economic front. The only and best way for the Serbian economic system to emerge from this struggle as a winner is for the state to take over some of the burden caused by the crisis and thus provide relief to the economy.

In that sense, the Serbian authorities took their task seriously: a little more than two weeks after the declaration of the state of emergency, the Government announced the adoption of a new legal framework aimed at reviving the unstable economy, preventing unemployment growth and preserving companies most affected by the COVID-19 crisis. The Government of the Republic of Serbia is expected to adopt a Regulation in the next 10 days, whose implementation is planned to start in May.

The very content of the Regulation consists of the Program of Economic Measures, valued at over € 5 billion, and comprises of four sets of measures. We will briefly go over each set in the following lines.

These measures are for the most part aimed at deferral of payment for the due tax liabilities.

• Payment of payroll tax and social security contributions for the private sector is deferred, with the possibility of repayment in installments at a later date, with tax liabilities due in 2021. This measure is aimed to preserve the liquidity of business owners who pay up their employees’ salaries, as well as self-employed entrepreneurs.

• Tax relief measures are also directed toward contributors of donations aimed at those institutions (medical, first and foremost) that are directly involved in the prevention and further spread of the virus – the donation contributors will be VAT exempt
• Payment of monthly advances on corporate income tax due in the second quarter is deferred – i.e., postponed from April to June. This is aimed to preserve the liquidity of all taxpayers, bearing in mind that this measure applies to all, regardless of their economic strength.

These measures include direct payments to private sector entities, thus stimulating employers to maintain their existing headcount, bearing in mind that the country will bear the cost of a portion of the payment of salaries (in the first case), i.e., compensation for salaries (in the second case).

• Lump-sum entrepreneurs, micro, small and medium-sized enterprises will receive direct financial aid in the amount of the minimum wage for the duration of the state of emergency.

• Large private sector companies will receive subsidized financial aid in the amount of 50% net minimum wage, the number of which will be determined based on the number of employees retained by the employer, although there is currently no need for their work.

These measures are partly aimed at the future outlook – to mitigate the external impacts and consequences of the COVID-19 crisis on the economy in the Republic of Serbia. A current priority is to achieve stabilization, and it will certainly remain so for some time after the epidemic is over.

• Program for granting loans and working capital for entrepreneurs, micro, macro, medium-sized enterprises, agricultural holdings, and registered cooperatives through the Development Fund of the Republic of Serbia.

• Guarantee schemes to support the liquidity of all the above-mentioned entities through commercial banks operating in the Republic of Serbia.

Bearing in mind the primary goal behind the measures – to preserve employment for the duration of the state of emergency and to assist business entities whose commercial activity has been affected by the newly emerged conditions, the measures will not apply at everyone.

The following are exempted from the relief measures:

• Business entities that have reduced the number of employees by more than 10% during the state of emergency – not including employees whose fixed-term contracts expire during that period; and

• Business entities that temporarily ceased their business activities before the proclamation of the state of emergency, i.e., before March 15, 2020.

As a recap, we remind you that the Serbian authorities have previously already taken certain measures at the economic front. Together with the newly announced measures of March 31, all-encompassing protection of the Serbian economic system from the global crisis is expected.

• Price control has been imposed for essential foodstuffs, safety equipment, and protective disinfectants, while at the same time, a temporary export ban has been imposed on the export of basic products vital to citizens;

• The Decision on the extension of validity for all identity documents that have expired or will expire during the state of emergency;

• Employee protection measures during the state of emergency, adopted by the Decree on Organization of work of Employers during the State of Emergency, of which you can read further in COVID-19 and Employers: Didn’t Like Work from Home? Better start…;

• Deferral from the application of the provisions of the Law on Taxes and Tax Administration relating to the annulment of an agreement authorizing a taxpayer to defer payment of tax liabilities – beginning with the installment due in March 2020;

• Harmonization of deadlines in administrative procedures to prevent the breach of rights of parties and suspension of deadlines in court proceedings for the duration of the state of emergency.

• Moratorium – deferral in loan repayment for no less than 90 days – which we wrote extensively about in our blog COVID-19 and Loans: Take a Vacation from Loan Repayment;

• Restricting the rights of lessors in the form of imposing a ban on accrual of interest on outstanding claims and preventing the initiation of other legal actions towards the lessee;

• Exemption from fees and other expenses for donations aimed at COVID-19 relief.

In addition to all the measures presented, the competent authorities have left some leeway to adopt additional measures aimed at supporting the most vulnerable public sectors.

The announce measures for the economy that are expected in the next days should fully meet all the current needs of the Serbian economy and maintain it at a certain level during the state of emergency to allow its further development and progress once the COVID-19 epidemic passes.