On 23 April 2020, the Minister of Finance provided more detail on the additional COVID-19 tax relief measures announced by President Cyril Ramaphosa on 21 April 2020. Some new measures were also announced that were not included in the president’s speech of 21 April 2020.
The additional clarity and new measures are outlined below:
- Skills Development Levy Holiday – This will take effect on 1 May 2020 from which date a four-month holiday from contributions (1% of total salaries) will be provided.
- “Fast-tracking” of value-added tax (VAT) refunds – In order to enable a faster input tax refund process, VAT vendors which are in a net refund position will be permitted to elect to file monthly (instead of bi-monthly) VAT returns. This will be implemented for a limited period of four months starting from 1 April 2020. SARS’ systems to accommodate this are expected to be in place in May 2020; this will enable “Category A” vendors, which would otherwise have only filed in June 2020 in respect of the April/May 2020 VAT period, to file VAT returns in May for the April period.
- A 90 day deferral for the payment of excise taxes on alcohol and tobacco – This measure was not announced by the President on 21 April 2020. It is provided to alleviate the financial hardship currently being faced by the alcohol and tobacco industry. Due to the current restrictions on the sale of alcohol and tobacco, producers in these industries are liable for large excise duty bills while no sales of product are occurring. Accordingly, payments due in May 2020 and June 2020 will be deferred by 90 days for excise compliant businesses to more closely align tax payments with retail sales.
- Postponement of the implementation of the Budget 2020 measures with respect to the limitation of interest deductions and carry forward of assessed losses – Two tax proposals announced by the Minister of Finance in his 2020 Budget Speech were meant to be effective for years of assessment commencing on or after 1 January 2021: (i) the restriction of net interest expense deductions to 30% of earnings; and (ii) the limitation on the use of assessed losses carried forward to 80% of taxable income. Both measures will now be postponed to at least 1 January 2022.
- An expanded employment tax incentive (ETI) through increasing the ETI claim to R750 – The initial set of COVID-19 tax relief measures provided for an increased wage subsidy applicable for a limited period of up to R500 per month for employees who fall outside of the ETI programme either because of their age or their employer having already claimed the ETI for the full 24 month period in respect of their employment (non-qualifying employees). Accordingly, the maximum amount claimable under the ETI programme in respect of qualifying employees was increased from R1,000 to R1,500 for the first qualifying twelve months and from R500 to R1,000 for the second qualifying twelve months.
- Case by case application to SARS to defer tax payments without incurring penalties - Larger businesses with gross income of more than R100 million that can show that they are incapable of making tax payments due to COVID-19 (i.e. “materially and negatively impacted” businesses) may apply directly to SARS to defer tax payments without incurring penalties. These businesses may contact their relationship manager through the SARS Large Business Centre to initiate the application. Similarly, businesses with gross income of less than R100 million can apply directly to SARS for an additional deferral of payments without incurring penalties.
- Adjusting employees’ tax for donations made through the employer – In terms of current employees’ tax rules, employers can factor in donations of up to 5% of an employee’s salary on a monthly basis for Pay As You Earn (PAYE) purposes, thereby allowing for a reduction of an employee’s monthly PAYE withholding for donations made by the employee’s employer to certain approved public benefit organisations. An additional percentage of up to 33.3% can now be factored in, depending on the employee’s circumstances and for a limited period, for donations to the Solidarity Fund, the funding vehicle established by government for COVID-19 related contributions. No detail has been provided on the “employee circumstances” that will be a relevant determinant in permitting an increased percentage. It is also not clear whether the intention is to limit the additional relief to donations made to the Solidarity Fund only or whether donations made to any COVID-19 disaster relief fund will qualify.
The draft Disaster Management Tax Relief Bill and the draft Disaster Management Tax Relief Administration Bill (the “COVID-19 draft tax bills”) that were published on 1 April 2020 will be revised to take into account the above-mentioned relief measures and it is expected that the revised COVID-19 draft tax bills will be published for further public comment on 30 April 2020.
Although not clear, it appears that the legislative process applicable to the COVID-19 draft tax bills will follow a more expedited process to that of the Taxation Laws Amendment Bill (TLAB) and the Tax Administration Laws Amendment Bill (TALAB).
A copy of the 23 April 2020 National Treasury media statement relating to these developments can be accessed here.