While welcoming the clear guidance given by President Ramaphosa on the gradual lifting of South Africa’s lockdown restrictions, it is clear that there is still a long journey ahead and that the economic hardship will be with us for some time.
This brings a sharp focus back onto the available relief measures. Clive Stewart has prepared an article setting the further tax measures as announced by President Ramaphosa on Tuesday 21 April which is set out below. Our summary of the existing measures is available at https://bizsupport.help/2020/04/09/covid-19-relief-measures-overview/.
COVID-19: Further Tax Measures 21 April 2020
By Clive Stewart CA(SA)
During his address to the nation on 21 April 2020, President Cyril Ramaphosa announced an additional set of measures to assist individuals and small businesses during the COVID-19 pandemic. These measures are expected to provide around R70 billion in support, either through reductions in taxes otherwise payable or through deferrals of tax payments for tax compliant businesses. Some of the major interventions include:
- Skills development levy (SDL) holiday: From 1 May 2020, there will be a four-month holiday for the payroll based SDL contributions (1 per cent of total salaries) to assist all businesses with cash flow.
- Fast-tracking of value-added tax (VAT) refunds: Smaller VAT vendors that are in a net refund position will be temporarily permitted to file returns monthly instead of once every two months, thereby unlocking the input tax refund faster and immediately helping with cash-flow.
- An increase in the expanded employment tax incentive (ETI) amount: The first set of tax measures provided for a wage subsidy of up to R500 per month for each employee that earns less than R6,500 per month. This amount will be increased to R750 per month.
- An increase in the proportion of tax to be deferred and in the gross income threshold for automatic tax deferrals: The first set of tax measures also allowed tax compliant businesses to defer 20 per cent of their employees’ tax liabilities over the next four months (ending 31 July 2020) and a portion of their provisional corporate income tax payments (without penalties or interest). The proportion of employees’ tax that can deferred will be increased to 35 per cent and the gross income threshold for both deferrals will be increased from R50 million to R100 million.
- Postponing the implementation of some Budget 2020 measures: The 2020 Budget announced measures to broaden the corporate income tax base by (i) restricting net interest expense deductions to 30 per cent of earnings; and (ii) limiting the use of assessed losses carried forward to 80 per cent of taxable income. Both measures were to be effective for years of assessment commencing on or after 1 January 2021. These measures will be postponed to at least 1 January 2022.
- Case-by-case application to SARS for waiving of penalties: Larger businesses (with gross income of more than R100 million) that can show they are incapable of making payments due to the COVID-19 disaster, 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.
In addition to the above, government has implemented the following measures in respect of donations to The Solidarity Fund:
- Increasing the deduction available for donations to The Solidarity Fund: The tax-deductible limit for donations under section 18A is currently 10 per cent of taxable income. This will be increased to 20% for donations to the Solidarity Fund during the 2020/21 tax year. For example, assuming that a taxpayer has a taxable income of R1 million before accounting for donations, the taxpayer will now be able to claim R200,000 as a tax deductable donation to the Solidarity Fund (previously R100,000). The 10% donation limit will remain in place for other section 18A donations.
- Adjusting pay-as-you-earn (PAYE) for donations made through the employer: Employers can factor in donations of up to 5 per cent of an employee’s monthly salary when calculating the monthly employees’ tax to be withheld. An additional percentage of up to 33.3 per cent will be allowed for a limited period to enable deduction for donations to The Solidarity Fund. This will lessen cash flow constraints for employees who donate to the Solidarity Fund.
The above measures will be given legal effect in terms of changes to the Draft Disaster Management Tax Relief Bill and the Draft Disaster Management Tax Relief Administration Bill.For further information, please refer to the National Treasury Media Statement