COVID-19: ADDITIONAL TAX RELIEF, SOUTH AFRICA – UPDATED
Earlier this year, on 29 March, South African President Cyril Ramaphosa, announced tax relief measures to cushion the blow of the COVID-19 pandemic. Some of these measures were available only to smaller and medium sized businesses, with gross income of not more than ZAR 50 million per year (discussed here).
Since then, economic conditions have worsened, and National Treasury and the South African Revenue Service (SARS) have received a large number of requests for assistance, including requests from large businesses that are also experiencing substantial cash flow difficulty.
National Treasury recognises that the short-term interventions announced in the first fiscal package do not go far enough in assisting businesses or households through the crisis, especially as the lockdown has since been extended.
On 21 April, President Ramaphosa announced further tax relief measures to ease pressure on businesses and individuals. Earlier today, National Treasury released a Media Statement with further details of these and other measures. We have updated our newsflash of earlier this morning to include the further information contained in the Media Statement.
Tax payments and filing of returns
- The proposals regarding the deferral of provisional tax and employees’ tax (PAYE) that were announced on 29 March are being expanded to include taxpayers with a gross income of up to ZAR 100 million (previously ZAR 50 million or less). In addition, employers will now be able to defer 35% of their PAYE payments (previously 20%).
- Businesses that do not qualify for the automatic deferral above, can apply to SARS for deferral of tax payments on a case-by-case basis if they can show that they are incapable of making payments due to the COVID-19 pandemic. Businesses with gross income of less than ZAR 100 million can also apply for the additional deferral of payments without incurring penalties. This is a welcome announcement which indicates that Government is responsive to input from the public regarding the limitation of the previously announced relief to entities with a gross income of up to ZAR 50 million.
- Payment of excise taxes on alcoholic beverages and tobacco products will be deferred by 90 days. Due to the restrictions on the sale of alcoholic beverages and tobacco products during this period, excise payments for May and June will be deferred for 90 days for compliant businesses. As excise duties are imposed at the point of production, this is being done in order to more closely align the tax payments through the duty-at-source system with retail sales.
- Taxpayers liable for filing and paying Carbon Tax, which was initially due by 31 July 2020, will be entitled to a three-month deferral. This deferral is aimed at providing taxpayers with additional time to complete their first returns, manage their cash flows in the short term and to allow for the utilisation of carbon offsets as administered by the Department of Mineral Resources and Energy. The filing and payment date is being postponed to 31 October 2020. No extensions have been announced in respect of any other tax types.
Other tax relief
- The processing and payment of VAT refunds will be fast-tracked. Smaller VAT vendors that are in a net refund position, will be temporarily permitted to file their VAT returns on a monthly basis instead of bi-monthly. SARS is in the process of configuring its systems in order to give effect to this. It is anticipated that Category A vendors, whose next VAT return would be in respect of the two months ending at the end of May, should be able to file a return for April during May. While the Media Statement does not define what is meant by ‘smaller vendors’, this presumably refers to vendors with annual turnover of less than ZAR 30 million (Category A and B vendors).
- The 2020 Budget announced certain measures to broaden the South African corporate income tax base by (i) restricting net interest expense deductions to 30% of earnings; and (ii) limiting the use of assessed losses carried forward to 80% of taxable income. It was initially proposed that both measures would be effective for years of assessment commencing on or after 1 January 2021. These measures will now be postponed to at least 1 January 2022.
- Section 18A of the Income Tax Act currently provides that donations to organisations approved in terms of section 18A will qualify for deduction to the extent that it does not exceed 10% of the taxpayer’s taxable income for the year. This threshold will be increased by an additional 10% for donations to the Solidarity Fund during the 2020/21 tax year. Unfortunately, it does not appear that this relaxation will apply to other section 18A organisations, such as COVID-19 Trusts.
Individuals and employment
- Businesses will be provided with a four-month holiday in respect of skills development levy (SDL) contributions, to assist them with cash-flow. While President Ramaphosa’s speech referred to the payment holiday being provided to ‘companies’, we welcome the fact that the Media Statement stipulates that this will apply to ‘all businesses’. This will apply from 1 May 2020 for four months. It is not clear whether this is simply a deferral of SDL contributions or whether businesses will be relieved from the obligation to pay SDL contributions in respect of May to August 2020. In those instances where a deferral is provided (such as in respect of provisional tax and PAYE as referred to above) the impact of the relief is referred to in the Media Statement as an ‘interest free loan’. However, the Media Statement does not refer to the SDL relief in the ‘interest free loan’ category, thus indicating that SDL contributions for these four months will be waived.
- The expanded employment tax incentive (ETI) measures announced on 29 March provided for an ETI payment of up to ZAR 500 per month for all employees earning less than ZAR 6 500 per month. This will be increased to ZAR 750 per month for each employee who earns less than ZAR 6 500 per month. The Media Statement does not indicate the effective date hereof.
- Senior employees of many businesses have announced that they will be donating a third of their salaries to the Solidary Fund for the next three months. However, this resulted in cashflow difficulties from a PAYE perspective. In terms of the Fourth Schedule to the Income Tax Act, an employer may reduce the employee’s remuneration for PAYE withholding purposes by the amount of section 18A donations made on behalf of the employee. However, this is currently capped at 5% of remuneration after taking into account retirement fund contributions. The Media Statement proposes relaxing this rule to provide for an additional percentage of up to 33.3% to be taken into account, in respect of donations to the Solidary Fund. Unfortunately, it appears that this relaxation does not apply in respect of donations to other approved section 18A organisations, but only in respect of donations made to the Solidarity Fund. It is not clear what the effective date will be, but the relaxation will hopefully apply retrospectively to also cover donations made during April.
- Relief is also provided in the form of the deferral of PAYE for employers with a gross income of up to ZAR 100 million per year (refer to the discussion above).
- Individuals who receive funds from a living annuity are generally only allowed to make changes to the amount received as annuity income, once a year on the ‘anniversary date’ of the annuity. The Media Statement proposes that individuals who receive funds from a living annuity will temporarily be allowed to immediately either increase (up to a maximum of 20% from 17.5%) or decrease (down to a minimum of 0.5% from 2.5%) the proportion they receive as annuity income. This will assist individuals who either need funds immediately or who do not want to be forced to sell after their investments have underperformed.
Further clarity regarding these measures should be available by 30 April, when the draft bills alongside their draft explanatory memoranda are expected to be published.