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South Africa Details New COVID-19 Tax Measures

by Robert Lee,, London

01 May 2020

On April 23, 2020, the National Treasury of South Africa provided further details of the additional COVID-19 tax support measures first announced by President Cyril Ramaphosa on April 21.

These additional measures include a skills development levy holiday, expedited value-added tax refunds, a deferral of the carbon tax, and the postponement of certain changes announced in the 2020 Budget, in particular the proposed restriction on interest expense deductions. They are as follows:

Skills development levy holiday

From May 1, 2020, there will be a four-month holiday for skills development levy contributions (one percent of total salaries) to assist all businesses with cash flow. This provides relief of around ZAR6bn (USD315m).

Fast-tracking of VAT refunds

Smaller VAT vendors that are in a net refund position will be temporarily permitted to file monthly instead of once every two months to provide them with faster access to input tax refunds. SARS is working towards having its systems in place to allow this in May 2020 for Category A vendors (those required to file at the end of January, March, May, July, September and November) that would otherwise only file in June 2020.

Three-month deferral for filing and first payment of carbon tax liabilities

The filing requirement and the first carbon tax payment are due by July 31, 2020. To provide additional time to complete the first return, as well as cash flow relief in the short-term, and to allow for the utilization of carbon offsets as administered by the Department of Mineral Resources and Energy, the filing and payment date will be delayed to October 31, 2020, providing cash flow relief of close to ZAR2bn.

A deferral for the payment of excise taxes on alcoholic beverages and tobacco products

Due to the restrictions on the sale of alcoholic beverages and tobacco products, payments due in May 2020 and June 2020 will be deferred by 90 days for excise compliant businesses to more closely align tax payments through the duty-at-source system (excise duties are imposed at the point of production) with retail sales. This is expected to provide short term assistance of around ZAR6bn.

Postponing the implementation of some Budget 2020 measures

The 2020 Budget announced measures to broaden the corporate income tax base by: restricting net interest expense deductions to 30 percent of earnings; and limiting the use of assessed losses carried forward to 80 percent of taxable income. Both measures were to be effective for years of assessment commencing on or after January 1, 2021. These measures will be postponed to at least January 1, 2022.

An increase in the expanded employment tax incentive amount

The first set of tax measures provided for a wage subsidy of up to ZAR500 per month for each employee that earns less than ZAR6,500 per month. This amount will be increased to ZAR750 per month at a total cost of around ZAR15bn.

An increase in the proportion of tax to be deferred and in the gross income threshold for automatic tax deferrals

The first set of tax measures also allowed tax compliant businesses to defer 20 percent of their employees' tax liabilities over the next four months (ending July 31, 2020) and a portion of their provisional corporate income tax payments (without penalties or interest). The proportion of employees' tax that can deferred will be increased to 35 percent and the gross income threshold for both deferrals will be increased from ZAR50m to ZAR100m, providing total cash flow relief of around ZAR31bn with an expected revenue loss of ZAR5bn.

Case-by-case application to SARS for waiving of penalties:

Larger businesses (with gross income of more than ZAR100m) that can show they are incapable of making payment due to COVID-19 may apply directly to SARS to defer tax payments without incurring penalties. Similarly, businesses with gross income of less than ZAR100m can apply for an additional deferral of payments without incurring penalties.

Increasing the deduction available for donations to the Solidarity Fund:

The tax-deductible limit for donations (currently 10 percent of taxable income) will be increased by an additional 10 percent for donations to the Solidarity Fund during the 2020/21 tax year.

Adjusting pay-as-you-earn for donations made through the employer:

Employers can factor in donations of up to five percent of an employee's monthly salary when calculating the monthly employees' tax to be withheld. An additional percentage that can be factored in of up to 33.3 percent, depending on the employee's circumstances, will be provided for a limited period for donations to the Solidarity Fund. This will lessen cash flow constraints for employees who donate to the Solidarity Fund.

Legal effect

The above measures will be given legal effect by the two bills published by the Government on April 1, 2020. These are the Draft Disaster Management Tax Relief Bill and the Draft Disaster Management Tax Relief Administration Bill.

Additionally, SARS and the National Treasury will continue to monitor developments with the possibility that extra measures may be announced to assist with COVID-19 relief efforts.

TAGS: South Africa | Energy | tax | business | value added tax (VAT) | interest | employees | corporation tax | excise duty | transfer pricing | carbon tax | penalties | retail | individual income tax | VAT refunds | Africa | Tax

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