Tax Relief Relief During Covid19

Dear Clients,

On Sunday 29 March SARS released the tax relief measures that were announced by President Ramaphosa, and which I advised you last week had not yet been published. The government have identified the following tax relief measures.

1. ETI programme
   In order to minimise the loss of jobs during this critical period, government proposes expanding the ETI programme for a limited period of four months beginning 1 April 2020 and ending on 31 July 2020 as follows:




• Increasing the maximum of ETI claimable during this four month period for employees eligible under the current ETI Act from R1000 to R1500 in the first qualifying 12 months and from R500 to R1000 in the second 12
  qualifying months.
• Allowing a monthly ETI claim in the amount of R 500 during this four-month period for the employees from the ages of
• 18 to 29 who are not eligible for the ETI as the employee has claimed ETI in respect of those employees for 24
  months; and
• 30 to 65 who are not eligible for the ETI due to their age
2. Deferral of the payment of employees tax liabilities for tax compliant small to medium businesses
   For the purposes of this proposal, small and medium-sized businesses are defined to mean any business with an annual turnover not exceeding R50 million. The following tax measures are proposed for tax compliant small to medium-sized businesses for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020:




• Deferral of payment of 20% of the PAYE liability without SARS imposing administrative penalties and interest for the late payment thereof
• The deferred PAYE liability must be paid to SARS in equal instalments over the six-month period commencing 1 August 2020, i.e the first payment must be made on 7 September 2020

The above-mentioned proposals will not apply to an employer or representative employer that:

• Has failed to submit a return as defined in section 1 of the Tax Administration Act (TAA) on the basis required by section 25 of TAA
• has any outstanding tax debt as defined in section 1 of the TAA, but excluding a tax debt in respect of which an agreement has been entered into in accordance with section 167 or 204 the TAA act, that has been suspended in terms of section 164 of the TAA or that does not exceed the amount referred to in section 169 (4) of the TAA.

Please note that interest and penalties will apply if the employer has understated the PAYE liability for any of the four months.




3. Deferral of the payment of provisional tax for tax compliant small to medium businesses
   Government proposes the following tax measures for tax compliant small to medium businesses for a period of 12 months beginning 1 April 2020 and ending on 31 March 2021:
   
   
   • Deferral of a portion of the payment of the first and second provisional tax liability to SARS, without SARS imposing administrative penalties and interest for the late payment of the deferred amount;
   • the first provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15% of the estimated total tax liability, while the second provisional tax payment from 1 April 2020 to 31 March 2020
     will be based on 65% of the estimated total tax liability
   • provisional taxpayers with deferred payments will be required to pay the full tax liability when making the third provisional tax payment in order to avoid interest charges.

   
   

   For the purposes of this proposal, a small or medium businesses defined as any company conducting a trade with an annual turnover not exceeding R 50 million. The eligibility criteria for individuals carrying on business have yet to be finalised, but one possibility is that they will be eligible if their turnover is less than R5 million and no more than 10% of their turnover is derived from interest, dividends, foreign dividends, rental from the letting of fixed property and any remuneration received from an employer.
   

   The above-mentioned proposals will not apply to provisional taxpayers that:

   • have failed to submit any return as defined in section 1 of the TAA or
   • have any outstanding tax debt as defined in section 1 of the TAA but excluding a tax debt in respect of which in agreement has been entered into in accordance with section 167 or 204 of the TAA, that has been suspended in terms of section 164 of the TAA, or that does not exceed the amount referred to in section 169 (4) of the TAA.

It is likely that many companies will not fall into any of the above categories given the narrow definition of the relief. In my view, most companies in financial distress will have no provisional tax liability as they will be trading at a loss. Furthermore, most critically affected companies find themselves in a position that they are unable to pay salaries and wages, let alone the PAYE liability.

We also understand that the Minister of Finance and government will approach the IMF to obtain additional funding for South Africa. I am not sure whether this funding is to cater for the above relief or whether we are likely to receive more tax relief. I, personally, had hoped for delayed VAT payments but I doubt that the fiscus can
afford such a measure given the state of our economy.

Conclusion:
We will continue to keep you updated with any amendments to the above proposals or any new proposals which we become aware of.

I suggest that your first port of call in the event that your business is in distress would be your bank. It is likely that the banks will require up to date financial information and we will do our best to assist you to produce this information in the event that it is necessary.

Please contact me should you require any additional information in respect of the above proposals require any form of assistance in respect of negotiations with the banks or updated financial information.

Kind regards,

David Honeyball