South African President Cyril Ramaphosa has announced further tax measures to assist businesses and their employees through the difficult COVID-19 period. The additional tax relief measures include the fast-tracking of VAT refunds to help with cash flows, a four-month holiday for company skills development levy contributions and a three-month delay for the filing and first payment of carbon tax. Taxpayers who donate to the Solidarity Fund, set up to aid vulnerable South Africans, support initiatives that are set in place to contain the spread of COVID-19 in South Africa and drive the solidarity campaign, will also now be able to claim up to an additional 10% as a deduction from their taxable income.
The president noted that in order to assist a greater number of businesses during the COVID-19 statutory lockdown, the previous turnover threshold for tax deferrals would be increased. The aim of the deferral of employees’ tax and provisional tax payments is to alleviate the cash flow burden in the short term so that businesses can pay their staff and suppliers. Tax compliant Small, Medium and Micro Enterprises (SMMEs) with a turnover of up to ZAR100 million, (where it was previously ZAR50 million) can now defer 35% (previously 20%) of their employees’ tax payment for the months of April to July without incurring penalties and interest. Further, tax compliant businesses with a turnover of more than ZAR100 million will be able to apply to SARS to defer their employees’ tax and provisional tax obligations and this will be assessed on a case-by-case basis.
The catch, however, is that taxpayers who take advantage of this relief are required to pay the deferred amounts to SARS over a period of six months starting from 1 August. This means that the first payment would need to be made by 7 September with the employees’ tax filing for August. As such, this relief measure is seen as more of an “interest free loan” to help alleviate the cash flow issues many businesses are facing during this time. It is unfortunately not cash in your pocket since, as is the case with any loan, it needs to be repaid. The real relief is that businesses will not incur penalty and interest charges should they take advantage of the deferral.
In March, President Ramaphosa announced that, in terms of the draft Disaster Management Tax Relief Bill (Bill), Government would provide a tax subsidy of ZAR500 per month, not only for qualifying employees under the current Employment Tax Incentive (ETI), but for all private sector employees who earn less than ZAR 6 500 per month. This subsidy is not passed on to the employee since it is aimed at providing financial assistance to the employer in order to minimize job losses. It is likely that employers would employ the additional cash flows in their business so that they can ensure the continuation of those businesses in future and avoid job losses later.
The ETI was introduced in January 2014 and aimed at encouraging employers to hire young people between the ages of 18 to 29 by assisting with the cost of employment, without affecting the wage received by employees. The incentive can be claimed for a period of 24 months at ZAR 1000 per qualifying employee per month for the first year and ZAR500 per qualifying employee per month for the second.
Although the main aim of the Bill is to assist SMMEs, it seems all eligible employers would qualify for the ETI subsidy unless, in the final Bill, this is limited to SMMEs only. This is doubtful, however, because large organisations and their employees are equally affected by the current pandemic and if these organisations are not given some relief, the country is likely to see huge job losses, which is what the government is trying to avoid.
While the relief measures will certainly assist businesses, especially those SMMEs with good financial and tax practices, to keep the doors open through the pandemic, it is likely not enough to avoid job losses and going concern issues in the long run. The effects of this pandemic on South Africa’s economy are likely to stay with us for a long time and the government is assisting in all possible areas. The president noted in his April 21 address that in total, these tax relief measures would provide around ZAR70 billion in cash flow relief or direct payments to businesses and individuals.