Business
US Congress Considers Tax Breaks On Equipment Purchases
There’s a chance tax breaks, which include the research and development credit and a deduction that lets businesses accelerate depreciation on their equipment purchases, will eventually get extended for 2012 and be made retroactive to January 1.
But that may not happen until the end of the year, when Congress engages in what’s likely to be an epic fight over extending the Bush tax cuts and cutting spending.
Meanwhile, businesses are left wondering whether to go ahead and buy equipment without knowing whether a tax break will be made available later.
“Businesses need certainty and predictability. Retroactive tax policy simply does not achieve this goal,” Caroline Harris, chief tax counsel of the U.S. Chamber of Commerce, told the Senate Finance Committee last month.
For one thing, “it takes a lot of the effectiveness out of these incentives,” said Clint Stretch, managing principal of federal tax policy at Deloitte Tax.
Businesses’ willingness to finance projects or their ability to convince financing partners to take a risk on those projects may be compromised if they worry that a host of expired energy credits — not all of which have bipartisan support — won’t be extended for 2012, Stretch said.
The R&D credit is a different story. Unlike the energy credits, it does have solid bipartisan support and most expect it will be renewed. So businesses are likely to act as if it has been. “But they won’t feel good about it,” Stretch said.
That’s because their quarterly financial statements can’t reflect the benefit of the R&D credit before it’s extended. So those statements will look worse than they actually are until Congress extends the break.
The uncertainty factor that surrounds the business tax extenders is amplified this year since Congress is actively talking about tax reform. A key part of reform — which few expect to happen before 2014 – will be deciding which of the temporary tax breaks to make permanent and which to jettison for good.
Ultimately, though, that could work to the advantage of businesses and the economy, since companies will have more certainty than they do now about what they can expect in the tax code from year to year.
That’s the theory anyway.
In the meantime, the road to achieving that certainty is likely to be a bumpy ride.
The facility will be disbursed through participating Microfinance Institutions (MFIs), which will in turn extend the loans to their customers, particularly SMEs, as they directly interface with businesses at the grassroots level.
The Executive Director of COMCIN, Mr. Micheal Ogbaa who represented the Chairman, Dr. Iredele Oyedele (FCA, FCCA), said the initiative is designed to strengthen micro-lending institutions and expand access to finance for grassroots entrepreneurs, particularly women and youths in the informal sector.
Ogbaa explained that COMCIN does not lend directly to individuals but works through its network of microfinance and cooperative institutions, which in turn provide loans to end users.
“We came together to advocate for the microfinance ecosystem. Commercial banks often exclude people at the grassroots, but our members are positioned to reach them. This facility will empower them to do more,” he said.
He noted that the loan scheme offers low interest rates and flexible repayment plans, making it more accessible to small business owners.
According to him, about 90 percent of beneficiaries are expected to be women, who play a key role in sustaining families and driving economic activities at the local level.
“Our focus is on traders, service providers, and players in the informal sector. These are the real movers of the economy. By supporting them, we are strengthening families and contributing to national development,” he added.
Ogbaa disclosed that eligible SMEs with proven integrity and business track records could access up to N5 million each through participating micro-lending institutions. The rollout has commenced in Lagos and will extend to Abuja, Enugu, and other regions, including the South-West, South-East, and North-East.
He said 12 micro-lending institutions have already benefited from the scheme, while 85 applications are currently being processed under the pilot phase.
“Our target is to reach at least 100,000 SMEs nationwide. We are building a platform that connects funding partners with credible micro-lending institutions, creating a reliable channel for financial inclusion,” Ogbaa said.
He added that COMCIN is also working to attract larger funding pools from development finance institutions and private investors, noting that successful implementation of the pilot phase would boost confidence and unlock more capital for SMEs.
“We have seen encouraging testimonies from early beneficiaries. As we demonstrate transparency and efficiency, more institutions will be willing to channel funds through us,” he said.
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