As a result of the National Disaster and the lockdown necessitated by the pandemic, the Minister of Finance announced various tax adjustments to assist businesses in light of the negative impact on the South African economy.
On the 29th of March 2020, the Minister of Finance announced the details of an initial set of measures to assist tax-compliant businesses with cash flow and to provide an incentive for businesses to retain their employees. Since the announcement, 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 difficulties.
The 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.
The adjustments were mainly dealt with in the Draft Disaster Management Tax Relief Bill (1 April 2020), and the Draft Disaster Tax Management Tax Relief Administration Bill (1 April 2020). The Bills are accompanied by a Draft Explanatory Memorandum.
Updates have also been published on the websites of SARS and National Treasury, in particular relating to value-added-tax (“VAT”) and customs duty concessions on the importation of “essential goods”.
The Disaster Management Tax Bills provide for three types of tax relief: cash flow relief, deferral of amounts due to SARS, and relief in relation to time periods within which certain actions/ functions need to be complied with.
Cash flow relief
Employment tax incentive relief
From 1 April 2020 to 31 July 2020, employers will be able to claim an additional employment tax incentive (ETI) as follows:
- an additional R750 per qualifying employee, i.e. an increase from R1000 to R1750 in the first qualifying twelve months, and from R500 to R1250 in the second qualifying twelve months;
- R750 for each qualifying employee (18-29 years) who is no longer eligible for the ETI as the employer has claimed ETI in relation to those employees for the qualifying 24 months; and
- R750 for each employee between 30 to 65 years who does not qualify for the ETI due to age.
ETI reimbursements will be processed monthly, as opposed to bi-annually.
The ETI relief is only available to tax-compliant employers who are registered with SARS on 1 March 2020.
Fast-tracking of VAT refunds
Smaller VAT vendors that are in a net refund position will be temporarily permitted to file monthly instead of once every two months, thereby unlocking the input tax refund faster and immediately helping with cash flow. SARS is working towards having its systems in place in May 2020 for Category A vendors that would otherwise only file in June 2020.
Full rebate of customs duty and import VAT on the importation of “essential goods”
SARS issued a media statement on 27 March 2020 (updated on 29 March 2020) on certain customs duty and VAT concessions on the importation of “essential goods” as defined in the regulations issued under the Disaster Management Act.
Importers will be able to claim a full rebate of customs duty and VAT exemption on the importation of certain goods.
Importation of supplies critical to the national state of disaster (referred to as “critical supplies”) can be done free of customs duty and import VAT.
These goods may be entered under full rebate as item 412.11 of Schedule 4 of the Customs and Excise Act and exempt under item 412.11/00.00/01.00 of Schedule 1 to the VAT Act. A list of the qualifying “critical supplies” goods is available on the International Trade Administration Commission (ITAC) website. In order to claim customs duty relief, the importer would need to obtain a permit from ITAC and we understand that ITAC will be issuing the necessary permits for certain listed goods.
An ITAC import certificate will suffice for the purposes of claiming a VAT exemption on the importation of the same goods. Note that this VAT concession only applies to VAT incurred on the importation of the listed goods, and not on the subsequent supply of such goods by VAT vendors. The VAT treatment of the local supply of goods by an importer or any other vendor thus remains unaffected by the import VAT exemption and the normal procedures apply.
Access of living annuity funds
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, instead of waiting up to one year until their next contract “anniversary date”. This will assist individuals who require immediate cash flow or who want to avoid disposing of investments that are currently performing poorly
Employees tax (PAYE) relief
An employer can only access this relief if the employer is a company, trust or individual that conducts a trade, has gross income of R50 Million or less during the year of assessment ending on or after 1 April 2020 but before 1 April 2021, whose gross income for the year does not include more than 10% income derived from interest, dividends, rental from letting of fixed property and remuneration, and is tax-compliant. A company, trust or individual meeting the aforementioned criteria is referred to as a “qualifying taxpayer” for purposes of the relevant legislation.
These businesses are able to defer payment of 35% of their employees’ tax liabilities due and payable for the period 1 April 2020 to 31 July 2020, without penalties and interest. The payment of the 35% deferred amount is to be split equally over 6 months from 7 September 2020 to 5 February 2021, i.e. the first instalment is payable by 7 September 2020.
From an administrative point of view, the full amount of the employees’ tax must be declared on the EMP201 form as per the normal process. If the taxpayer qualifies for this relief, only 80% of the employees’ tax liability must be paid by the relevant dates.
Provisional tax relief
“Qualifying taxpayers” and micro-businesses will be able to defer their first and second provisional tax liabilities as follows:
- The second provisional tax payment due will be based on 15% of the estimated total tax liability for the year (instead of 50%);
- The second provisional tax payment due will be based on 65% of the estimated total tax liability; and
- The full estimated tax liability is due when making the third provisional tax payment in order to avoid interest charges. The due date for the third provisional top-up payment is 30 September for taxpayers with February year-ends, and six months after the end of financial year for all other year-ends.
The above will apply to:
- First provisional tax periods ending on or after 1 April 2020 but before 1 October 2020; and
- Second provisional tax periods ending on or after 1 April 2020 but before April 2021.
For micro-businesses, the criteria are the same as in the case of “qualifying taxpayers” other than the requirement to have a gross income of R50 Million or less, and the 10% requirement for passive income/ remuneration.
The amount that must be declared on the IRP6 (provisional tax return) is the total estimated tax liability as per the normal process. If the taxpayer is a “qualifying taxpayer”, then only 15% (first provisional tax period) of the estimated tax liability or 65% (second provisional tax period) of the estimated tax liability, reduced by the first provisional payment, must be paid by the relevant due dates. The deferred tax liability will not attract any penalties and interest.
PAYE relief for Covid Disaster Relief Trust Payments
The new legislation provides for the creation of a Covid-19 Disaster Relief Trust that will provide relief to businesses in need. Where loans are made by the relief fund and payment thereof is made in terms of weekly allowances directly to the employees in order to ensure that jobs are retained, no employees’ tax withholding obligation arises for the employer. The payments will be treated as income in the hands of the employees and be subject to tax as such.
Skills development levy
From 1 May 2020, there will be a four-month holiday for skills development levy contributions in order to assist all businesses with their cash flow.
Extension of time periods
For purposes of the calculation of certain time periods referred to in the tax legislation, the days of lockdown are regarded as dies non (i.e. these days do not count). In particular, this is of relevance in relation to the dispute resolution process.
It is important to note that no extension has been granted for the submission of tax returns and payments. In addition, there is no extension for the submission of relevant material to SARS.
Extension of time periods in relation to imports
In terms of Binding General Ruling, No. 52 issued by SARS on 26 March 2020 (“BGR 52”), the time periods for direct and indirect exports where the prescribed timelines have not yet been exceeded, has been extended. BGR 52 refers to the Covid-19 pandemic as circumstances beyond the control of the vendor, which includes natural or human-made disasters.
In the case of direct exports (i.e. where the vendor bears the costs of transport and delivers the goods to the export country), the vendor is required to obtain the required documentary proof and export the goods within 90 days of the earlier date of invoice or date of any payment. BGR 52 extends this 90-day period by an additional three months.
Indirect exports are generally exports where (1) the vendors levies VAT at 15% and the foreign purchaser claims a VAT refund, or (2) where the vendor zero-rates the export where the export is by ship or air, or in certain circumstances by road or rail. In the case of (1), BGR 52 provides that the goods must be exported within 90 days of date of export. For (2), the goods must be exported by the vendor within 90 days of the earlier date of invoice or any payment. BGR 52 extends the 90-day period for both (1) and (2) by an additional three months.
The Commissioner: SARS may, on application, condone with retrospective effect any non-compliance with a time period if it can be shown that the non-compliance was as a result of the period of national lockdown.
Extension of days in customs and excise internal administrative appeals
The days between 27 March 2020 and 30 April 2020 will not be taken into account when determining the days or periods allowed for complying with any provision of the Customs and Excise Act on internal administrative appeals.
Other relief: UIF “TERS” Incentive
Details of the 2020 Covid-19 temporary employee/ employer relief scheme (“TERS”) are set out in a directive called the “Covid-19 Temporary Relief Scheme”.
The main purpose of TERS is to make provision for the payment of benefits to the contributors who have lost income due to the pandemic. In other words, the purpose is to compensate employees for the loss of income and not for the employer to benefit. The employer will, however, have to submit the claim in terms of the Scheme.
Should an employer close its operations (wholly or partly) for a period of three months or less as a result of the pandemic, affected employees will qualify for the benefit.
The benefit will constitute the cost of salary during the temporary close of business operations. The salary to be taken into account in calculating the benefit will be capped at a maximum amount of R17,712 per month per employee, and an employee will be paid in accordance with the income replacement rate sliding scale (38% – 60%) as provided for in the Unemployment Insurance Act. Should an employee’s income determined in accordance with the income replacement sliding scale fall below R3500 per month, the employee will be paid a replacement income equal to that amount.
An employee may only receive benefits in terms of the Scheme if the total benefit, together with any additional payment by the employer in any period, is not more than the remuneration that the employee would ordinarily have received for working during that period.
General comments on tax liabilities and late payments
No relief has been provided for the submission of tax returns and payments due to SARS. This is particularly pertinent to VAT, meaning that all VAT returns and payments must be made on time to prevent the incurral of interest and penalties.
Where the VAT payment cannot be accurately calculated due to circumstances beyond the control of the vendor, vendors may make a deposit that will be regarded as a provisional payment for the VAT liability. The vendor must, however, make an application to the Commissioner: SARS in this regard, since the Commissioner must be satisfied that the VAT payment(s) in question cannot be accurately calculated due to circumstances beyond the control of the person. The Commissioner further has a discretion to agree to accept a deposit payment and may impose conditions under which such a deposit may be accepted.
A late payment of PAYE (after the 7th of every month) and a late payment of provisional tax are both subject to a 10% late payment penalty. In addition, there is a 20% underestimation penalty if the estimated taxable income used for determining the amount of the second provisional tax payment is less than 90% of the actual taxable income.
Larger businesses (with gross income of more than R100 million) that can show that they are incapable of making tax payments due to the pandemic, may apply directly to SARS to defer tax payments without incurring penalties. Similarly, businesses with gross income of less than R100 million can apply for an additional deferral of payments without incurring penalties.
The 10% late payment penalties and 20% underestimation penalty are percentage-based penalties determined in accordance with the provisions of the Tax Administration Act (“TAA”). Penalties of this nature (percentage-based) may be remitted in “exceptional circumstances”, and if the taxpayer was “incapable of complying with the relevant obligation” in a tax statute. These exceptional circumstances include natural or human-made disasters, disruption in services and serious financial hardship (e.g. in the case of a business, an immediate danger that the continuity of business operations and the continued employment of its employees are jeopardised).
On the basis that BGR 52 refers to the Covid-19 pandemic as “circumstanced beyond the control of taxpayers”, the pandemic would likely be regarded as “exceptional circumstances” in relation to any requests for remission of percentage-based penalties and interest in terms of the TAA. Any requests for remission of penalties and interest will, however, be considered on a case-by-case basis.
Over the coming months, businesses should therefore maintain accurate records of, inter alia, the type of business interruptions experienced (e.g. bad debts, loss of clients, late payments from customers), monthly cash balances, turnover forecasts and debtors, as well as detailed payroll and VAT calculations.
Liesl has a BComm, BComm (Hons), LLB and LLM and was admitted as an advocate in 2000. She specialises in tax work, having performed such work at Deloitte and KPMG, and as a director at Cliffe Dekker Hofmeyr and ENS. She joined Caveat in 2019.