The address by resident Cyril Ramaphosa on Monday, 23 March 2020, set out certain fiscal relief measures to help small and medium enterprises (SMEs) and vulnerable firms mitigate cash flow
constraints as a consequence of the COVID-19 outbreak.
Certain of these measures will be implemented through the tax system and aim to use the tax system as a means of easing the liquidity constraints currently faced by businesses, notes the legal team at Webber Wentzel.
Specific detail on these measures will be published by National Treasury in the coming days. The law firm has provided a summary of the tax proposals set out in the address by the president below.
Support for businesses
Pay as you earn – SMEs with a turnover of less than R50 million:
- may defer 20% of their prospective pay-as-you-earn (PAYE) liabilities over the next four months; and
- may defer a portion of their provisional corporate income tax payments without penalties or interest over the next six months.
The deferral of provisional tax payments should apply to the first and second provisional tax payments as well as potentially the third top-up payment, Webber Wentzel said.
In order to qualify for these deferrals, the enterprise must be fully tax compliant. Enterprises can check their tax compliance status via SARS eFiling.
“We look forward to additional clarity around whether an application will need to be submitted to SARS or whether the relief applies automatically,” Webber Wentzel said.
Support for employers and employees
Employee Tax Incentive
Government has proposed an additional tax subsidy in the amount of up to R500 per month for the next four months per qualifying employee in the private sector.
The employment tax incentive (ETI) is paid to employers who employ qualifying employees (including the youth) and is considered a labour cost sharing mechanism between government and the private sector to incentivise employment.
The existing ETI is aimed at supporting qualifying employees who earn below R6,500 per month on a sliding scale based on salary where the employer is registered for Employees Tax.
The employer is entitled to reduce the total amount of its PAYE liability by setting off the ETI amount calculated in respect of that month.
Where there is no PAYE to set off against the ETI amount, the employer will be entitled to a reimbursement of the total ETI amount available as at the end of each PAYE reconciliation period.
A further proposal aims at reducing the reimbursement period to a monthly period, Webber Wentzel said.
“This will help over four million workers, while the South African Revenue Service (SARS) will work towards accelerating the payment of employment tax incentive reimbursements from twice a year to monthly, to get cash into the hands of compliant employers as soon as possible,” said Jana Botha, consultant, tax practice, Baker McKenzie Johannesburg.
Any employee who falls ill pursuant to exposure to Covid-19 at work will be entitled to claim from the Compensation Fund. Broadly speaking, claimants are required to include such compensation in their gross income for tax purposes.
The amount is, however, exempt from normal tax in accordance with section 10(1)(gB) of the Income Tax Act, the legal firm said.
UIF – Temporary Employee Relief Scheme
Government proposes utilising the Temporary Employee Relief Scheme (TERS) to enable companies to pay employees and avoid retrenchments. TERS was launched in December 2019 and is aimed at assisting businesses who face temporary constraints that will result in retrenchments.
The allowance will be in the form of a wage payment directly to employees, said Webber Wentzel.
“This should support SMEs and other vulnerable firms who are faced with a loss of income to provide support to workers.”
UIF and SDL
“Government is investigating a reduction in employer and employee contributions to the Unemployment Insurance Fund and a reduction in Skills Development Levies.”
The proposal entails using actuarial reserves in the Unemployment Insurance Fund to support workers of SMEs and vulnerable firms who are faced with loss of income and whose
employers cannot provide support,” Webber Wentzel said.
he Department of Small Business Development has made over R500 million available immediately – accessed via a simplified application process – to assist small and medium enterprises that are in distress.
Further, the Industrial Development Corporation has put together a package with the Department of Trade, Industry and Competition that provides more than R3 billion in industrial funding to aid vulnerable firms and to fast-track financing for companies that are critical to Government’s efforts to fight the virus and its economic impact, noted Baker McKenzie Johannesburg.
The Department of Tourism has also made an additional R200 million available to assist SMEs in the tourism and hospitality sector who are under particular stress.