RSM South Africa

Further tax measures to combat the COVID-19 pandemic

In an address by President Cyril Ramaphosa on 21 April 2020, he noted that Government has recognised the significant negative repercussions that the national lockdown is having on our economy, both to businesses and to households across the country. The address also highlighted further tax measures to be implemented as additional relief measures.

The Minister of Finance has issued a Media Statement on 23 April 2020 detailing the additional interventions to be introduced that are intended to assist individuals and businesses through the pandemic. This is with the intention of assisting in job retention and to support business that may be experiencing significant distress.

Please note that the draft bills and explanatory memoranda addressing these further interventions are only expected to be published for public comment by 30 April 2020. It is therefore cautioned that the final wording in the bills may impact on the discussion of the new measures as set out below.

The further interventions are detailed as follows:

Skills Development Levy (“SDL”) holiday

SDL is payable by all employers with an annual payroll of greater than R500 000. The monthly payment by the employer is based on 1% of the remuneration that is paid to employees.

As from 1 May 2020, there will be a four month holiday for SDL contributions. This is intended to assist businesses with cash flow.

The bill should assist in clarifying whether there are any limitations on employers that may qualify for this relief.

Fast-tracking of Value-Added Tax (“VAT”) refunds

In cases where a VAT vendor is in a net VAT refund position, and is filing the VAT returns on a bi-monthly basis, they will be temporarily permitted to file the VAT returns on a monthly basis, and as a result unlock the VAT refund faster to assist with immediate cash flow.

The South African Revenue Service (“SARS”) intends to update its systems for this to be applied in May 2020. This will allow the new measure to be applied for Category A VAT vendors that would normally only have been able to file the return in June 2020.

Three-month deferral for filing and first payment of carbon tax liabilities

For the new carbon tax regime, the filing requirements and first carbon tax payment deadlines were set for 31 July 2020. In order to provide additional time to complete the first return and to assist with some form of cash flow relief, the filing and payment date will be delayed to 31 October 2020.

Deferral for the payment of excise taxes on alcoholic beverages and tobacco products

Due to the restrictions on the sale of alcoholic beverages and tobacco products during the lockdown, excise payments due in May 2020 and June 2020 will be deferred by 90 days for excise compliant businesses. In terms of the duty-at-source system, the excise duties are imposed at the time of manufacture. As no sales of product have occurred, the deferral will more closely align tax payments with retail sales.

Postponing the implementation of certain 2020 Budget measures

The budget speech presented in February this year announced certain proposals intended to broaden the corporate income tax base. This included a restriction on the net interest expense deductions to 30% of earnings, and a limitation on the use of assessed tax losses brought forward to 80% of taxable income. These measures were planned to be effective for years of assessment commencing on or after 1 January 2021, but they will now be postponed until at least 1 January 2022.

Increase in the expanded employment tax incentive (“ETI”) amount

The first set of tax measures enabled an employer to claim an expanded ETI of up to R500 per month for qualifying employees earning up to R6 500 per month. That expanded ETI claim is now proposed to be increased to R750 per month.

The expansion of the ETI programme was set to run over the period from 1 April 2020 until 31 July 2020. It is anticipated that the increase in the expanded ETI is set to be effective from the commencement of the period on 1 April 2020, but should be confirmed in the bill to be released.

Increase in the proportion of tax to be deferred and increase in the gross income threshold for automatic tax deferrals

The first set of tax measures allowed tax compliant businesses to defer 20 per cent of their employees’ tax liabilities over the period from 1 April 2020 until 31 July 2020, as well as a portion of their provisional corporate income tax payments, without the imposition of any penalties or interest.

The proportion of employees’ tax that can be deferred will be increased to 35 per cent.

When identifying qualifying taxpayers that may benefit from these employees’ tax and provisional tax deferrals, the gross income threshold will be increased from R50 million to R100 million.

Case-by-case application to SARS for waiver of penalties

Larger businesses with a gross income of greater than R100 million that are able to prove they are not capable of making payment as a result of the Covid-19 pandemic, will be entitled to apply to SARS directly to defer tax payments without the imposition of penalties. In addition, businesses with gross income of less than R100 million may also apply for an additional deferral of payments without incurring penalties.

Increasing the deduction available for donations to the Solidarity Fund

The current limit for tax deductible donations is limited to 10% of taxable income. This will be increased by an additional 10% for donations to the Solidarity Fund during the 2020/2021 tax year.

Adjusting pay-as-you-earn for donations made through the employer

Employers may factor in a deduction for donations of up to 5% of an employee’s monthly salary when calculating the monthly employees’ tax to be withheld. An additional percentage that can be factored in of up to 33.3%, depending on the employee’s circumstances, will be provided for a limited period for donations to the Solidarity Fund.

This will lessen cash flow constraints for employees who donate to the Solidarity Fund.

Expanding access to living annuity funds

Individuals are normally required to wait for up to one year for the next contract anniversary date in order to revise the proportion of a living annuity that is being withdrawn as annuity income. The range is traditionally from a minimum of 2,5% up to a maximum of 17,5%.

There will be an opportunity to temporarily revise the proportion between a minimum of 0.5% up to a maximum of 20%. This will assist individuals who either need cash flow immediately or who do not want to be forced to sell after their investments have underperformed.

Neil Hughes

Director | Tax, Johannesburg

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