Economy Reopens, but A Wave of Bankruptcy Looms

By Kelvin Bras and Guido Cocconi

February 17th 2022. On the 25th of February, some of the last remaining covid restrictions in the Netherlands will be lifted. While most businesses, especially in the hospitality sector, are excited that things are opening up, this opening has a flip side: taxes.

In 2020 the Dutch government allowed businesses to request a postponement in tax payments until restrictions would be lifted. With this lift nearby, those taxes are looming. ‘’Several sectors were heavily hit, and they made use of the rule for delayed tax payments. Now that they can start again they start from a worse financial position than they were in before,’’ Olaf Van De Poll, accountant at Prócount accountancy tells 9to5.  

Businesses are facing problems. During the pandemic the saving grace for most businesses was the emergency fund freed by the government to cover losses. “Sometimes we couldn’t pay the rent because there wasn’t enough revenue coming in. And we also have our own employees that we need to pay,” tells Razi Masoud, owner of The Smooth Brothers in Groningen. The little money these businesses had was used to pay staff, not taxes.

Granted, with a projected growth of 25% to 30% things might look bright at first glance. But on top of the investments needed to fully re-open their businesses, entrepreneurs are faced with back-logged taxes.

Projected and actual size of the service industry compared to previous years

Still, most entrepreneurs are optimistic about the re-openings. “I have a very optimistic mindset. And during the pandemic I’ve always been optimistic,” Johan Buiter, owner of Buiter Barista Services says. He does add that he was one of the lucky ones that had his partner’s income to soften the damage.

This optimism is especially noticeable in the service industry. Bars, clubs and restaurants are hopeful that they’ll find a way to survive even with those looming tax bills.

Currently the tax debt in the service industry stands at 1,3 billion Euros. In November 2021 the national debt across all industries was 42 billion. That month Algemeen Dagblad reported that roughly half of that amount was paid back by business owners. Yet the businesses which made those payments were mostly healthy large organizations, not smaller run businesses that used the extension to survive.

Because of these taxes being recalled many businesses struggle to find the money to pay these bills and run a sustainable organization.

Compared to 2019 the service industry’s revenue nearly halved. At 58% of the level compared to 2019 the only saving grace for people in this branch were the government subsidies. The only branch which has been relatively stable since the start of the pandemic has been the logistics sector.

CBS’s latest publication of the economic growth and decline in the Netherlands, 2019-2021

Last year, because of governmental support, a low amount of businesses declared bankruptcy. But with support ending simultaneously as overdue taxes need to be repaid business owners face a dilemma: struggle to pay overdue taxes or declare bankruptcy.

It is likely that more businesses will follow suit in the next years. Without financial support the burden of taxes and investments will become insurmountable for businesses that used the tax extension to survive. “I wouldn’t want to think about the scenario where our family’s finances depended on my income. I would’ve been fucked,” Johan says when asked about what these tax debts mean for other businesses.

In the light of recent developments many entrepreneurs try to remain optimistic. They are glad, hopeful and happy that things are back on. But with bankruptcies lurking because of postponed taxes there is cause for concern among experts. Olaf Van De Poll expects a wave of bankruptcies. “That’s what’s predicted, and I predict it myself as well.”

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