South Africa’s tax relief measures and time concessions for businesses explained
The National Treasury has issued a number of notices on the additional tax measures it is considering, to provide relief during the coronavirus pandemic.
The notes expand on the exceptional fiscal package outlined by president Cyril Ramaphosa in his speech on 23 March 2020, while draft tax bills on these measures should be circulated for comment by 1 April 2020, says law firm Webber Wentzel.
The South African Revenue Service (SARS) has also published a number of updates on its website focusing on:
- Customs duty and value-added tax (VAT) concessions on the importation of “essential goods”;
- Extension of time periods by three months for direct and indirect exports;
- Days not taken into account for customs and excise internal administrative appeals.
Below Webber Wentzel unpacked all these tax changes and outlined what they will mean for individuals and businesses.
Late payments
Webber Wentzel noted that there has been no relief outlined for late VAT payments by vendors. There will thus be 10% late payment penalties and interest imposed on any VAT payments made after their due dates, regardless of the vendors’ VAT turnover.
Other than the employment tax incentive relief, it noted that there is also no PAYE or provisional tax relief for large businesses.
Currently, there is a 10% late payment penalty on PAYE paid after the 7th of every month, and a 10% late payment penalty for late payments of provisional taxes.
In addition, there is a 20% underestimation penalty if the estimated taxable income used for the second provisional tax calculations is less than 90% of the actual taxable income.
The 10% late payment penalties and 20% underestimation penalties are percentage-based penalties in the TAA. The percentage-based penalties may be remitted in exceptional circumstances, if the taxpayer was “incapable of complying with the relevant obligation” in a tax statute.
The list of exceptional circumstances includes:
- Natural or human-made disaster;
- Disruption in services;
- Serious financial hardship, e.g. in the case of a business, an immediate danger that the continuity of business operations and the continued employment of its employees are jeopardised.
Given that BGR 52 has referred to the Covid-19 pandemic as circumstances beyond the control of taxpayers, it is likely that the pandemic would similarly constitute exceptional circumstances for any requests for remission of percentage-based penalties and interest in the TAA.
Nevertheless, any requests for remission of penalties and interest will be on a case-by-case basis.
A SARS committee considering the request is likely to be guided by the principles of whether objectively (1) the taxpayer was incapable of complying with its tax payment obligations; and (2) the documents provided to support this allegation are accurate and reliable.
Extension of days in customs and excise internal administrative appeals
The days between 27 March 2020 and 16 April 2020 will not be taken into account when determining the days or periods allowed for complying with any provision of the Customs and Excise Act on internal administrative appeals.
It is still unclear whether there would be a similar dispensation for the dispute resolution process for objections and appeals in terms of the Tax Administration Act (TAA).
Record-keeping
Webber Wentzel said that it would be useful for businesses to maintain records over the coming months of the following:
- The type of business interruptions experienced. This could be in the form of number of cancellations of existing clients, bad debts, number of debit orders bouncing and amounts, late payments from customers, agreements being renegotiated, and discounts given.
- Monthly cash balances and forecasts of turnover, cash flow and debtors on various dates. This is to demonstrate an ongoing assessment of the financial health of the business, and corresponding decisions taken;
- Detailed payroll calculations and PAYE statements of accounts at various dates. The PAYE statement of account currently levies a 10% late payment penalty if payment reflects after the 7th of every month. It is still unknown how the 20% deferral and ETI payments will be administered on the PAYE statement of account. If the PAYE statement of account in the interim period does not reflect balances accurately, employers should undertake their own detailed payroll calculations and make payments accordingly;
- VAT calculations and financial impact of the disaster on turnover and collections over the next few months.
Employment tax incentive relief
From 1 April 2020 to 31 July 2020, employers will be able to claim an additional employment tax incentive relief (ETI) as follows:
- An additional R500 per qualifying employee – i.e. an increase from R1,000 to R1,500 in the first qualifying 12 months, and from R500 to R1,000 in the second qualifying 12 months;
- R500 for each qualifying employee (18 to 29 years) who is no longer eligible for the ETI as the employer has claimed ETI on those employees for the qualifying 24 months;
- R500 for each employee between 30 to 65 years who does not qualify for the ETI due to age.
ETI reimbursements will be processed monthly, as opposed to twice a year. The above relief will only be available to tax-compliant employers who are registered with SARS on 1 March 2020.
Deferral of employees’ tax for small- to medium-sized businesses Small- to medium-sized businesses are those with an annual turnover of less than R50 million.
These businesses will be able to defer payment of 20% of their employees’ tax (PAYE) liabilities due and payable for the period 1 April 2020 to 31 July 2020, without penalties and interest.
The relief will be available to tax-compliant businesses. The 20% deferral will be payable in equal instalments over six months from 1 August 2020, i.e. the first instalment must be paid by 7 September 2020. Deferral of provisional tax payments for small- to medium-sized businesses.
Deferral of employees’ tax for small- to medium-sized businesses
Small- to medium-sized businesses are those with an annual turnover of less than R50 million.
These businesses will be able to defer payment of 20% of their employees’ tax (PAYE) liabilities due and payable for the period 1 April 2020 to 31 July 2020, without penalties and interest. The relief will be available to tax-compliant businesses.
The 20% deferral will be payable in equal instalments over six months from 1 August 2020, i.e. the first instalment must be paid by 7 September 2020.
Deferral of provisional tax payments for small- to medium-sized businesses
Small- to medium-sized companies conducting trade with an annual turnover of less than R50 million will be able to defer their first and second provisional tax liabilities as follows:
- 15% of the estimated tax liability for the year of assessment is to be paid as the first provisional tax payment (instead of 50%);
- 50% is to be paid as the second provisional tax payment; and
- 100% of the estimated tax liability will need to be paid by the third provisional top-up date to avoid interest. The due date for the third provisional top-up payment is 30 September for taxpayers with February year-ends, and six months after the end of the financial year for all other year-ends.
The above will apply to:
- First provisional tax periods ending on or after 1 April 2020 but before 1 October 2020; and
- Second provisional tax periods ending on or after 1 April 2020 but before 1 April 2021.
Provisional tax payment relief for sole-proprietor businesses has not yet been finalised.
One possibility is that they could be eligible for similar relief if their annual turnover is less than R5 million and less than 10% of their income is from interest, dividends, foreign dividends, rental and remuneration.
Read: How South African insurers are set to cover the coronavirus
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