COVID-19: tax measures
Accurate as at 3rd April 2020
On Sunday, 29 March 2020, the Minister of Finance published a media release and an Explanatory Note on the Covid-19 tax measures that National Treasury and the SARS intend introducing which is primarily aimed at assisting vulnerable employees and small businesses. The Minister announced that these measures will be applicable from 1 April 2020.
The legal framework for the measures has still to be put in place, and the draft bills (the Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill) will be published on 1 April for public comment. The Minister envisages that the bills will be enacted with retrospective effect when Parliament re-convenes later this year.
The three proposed measures are:
- A tax subsidy of up to R500 per month for the next four months (i.e., April to July 2020) for employees earning below R6 500 per month.
- The South African Revenue Service (SARS) has undertaken to accelerate the payment of employment tax incentive reimbursements from twice a year to monthly.
- Businesses with a turnover of less than R50 million that are currently tax compliant can delay payment of 20% of their employees tax (PAYE) liabilities (for April to July 2020) and a portion of their provisional tax payments without interest and penalties.
This proposal is in two parts. In respect of employees that already qualify for the Employees Tax Incentive (ETI), the cap on the amount of ETI claimable is increased as follows:
- first qualifying 12 months from R1 000 to R1 500; and
- second qualifying 12 months from R500 to R1 000.
The second part is in respect of employees who do not currently qualify for the ETI either because:
- they are in the 18 to 29 age bracket, but the employer has already claimed the ETI for the maximum 24 month period; or
- they do not qualify, as they are in the 30 to 65 age bracket.
Note that these measures are only available to employers that were registered with SARS at 1 March 2020.
An employer that has not been claiming the ETI because it has not had eligible employees due to their age, may now claim an ETI if the employees fit the expanded categories and those employees earn less than R6500 per month.
Accelerating payment of ETI reimbursements
The SARS will be changing its system to accelerate any reimbursements due to an employer under the ETI scheme from the current twice a year to a monthly basis.
This will apply in those situations where the ETI incentive exceeds the amount of PAYE that an employer must pay over to the SARS.
There is no special requirement for an employer that is registered with the SARS and is claiming the ETI (and now enhanced ETI as described above), provided that the employer is, in any event, fully tax compliant.
Deferral of payments
An employer with turnover of less than R50 million may defer payment of 20% of its PAYE liability for each of the months from April to July 2020. These deferred amounts must then be paid in six equal instalments from August 2020 through January 2021. Thus, the first of these payments must be made (along with the August PAYE) on 7 September 2020. Note that under the wording of the Explanatory Note there is no reduction in the PAYE payable for March 2020. The payment on 7 April will therefore be the full amount of the employer’s March PAYE liability.
Note that the six equal repayment amounts must be made in addition to the employer’s normal PAYE payments during the six month repayment period.
The 20% deferral of payment will not be subject to any penalties or interest, provided that the employer does not underestimate its PAYE liability in that period.
In order to qualify for this concession, the employer must be tax compliant. This means that all of its returns (for all taxes) must be up to date and it must not have any outstanding tax debt.
There are no details yet on how the employer must fill out and file its EMP201 returns in order to claim this deferral.
This concession is available only to companies that are considered to be a small business, i.e., companies with a turnover of less than R50 million per annum
National Treasury and SARS are considering the eligibility criteria for individuals. The Explanatory Note has suggested that for an individual to be eligible, his or her turnover must be less than R5 million with no more than 10% being derived from passive income (interest, dividends, foreign dividends, and rental from fixed property) and remuneration. We await further details of this.
An eligible taxpayer can defer a certain amount of its provisional tax payments without attracting interest and penalties.
An eligible taxpayer can base its first and second provisional tax payments on the following reduced amounts:
- First provisional payment due between 1 April 2020 and 30 September 2020 – 15% of estimated total tax liability;
- Second provisional payment due between 1 April 2020 and 31 March 2021 – 65% of estimated total tax liability.
In order to avoid interest being levied where taxpayers have deferred amounts in this manner, the full amount of provisional tax must be paid at the time of the third provisional payment.
Again, in order to qualify for this concession, the employer must be tax compliant. This means that all of its returns (for all taxes) must be up to date and it must not have any outstanding tax debt.
There are no details yet on how the employer must fill out and file its IRP6 returns in order to claim this deferral.
These comments are based on the Explanatory Note published by National Treasury with the Minister’s announcement. Mazars will be providing more detail on how a taxpayer can take advantage of these measures as and when National Treasury and the SARS provide the legislative and operational structure for them.