There has been a significant response by National Treasury, the South African Revenue Service, the private sector and various government bodies in respect of relief measures aimed at minimising the negative effect of COVID-19. This article will cover two aspects; first a brief summary of the measures recently introduced by National Treasury and SARS in so far as they relate to tax relief for businesses and individuals. Second, we’ll give you details of the various kinds of funding streams available to businesses to combat the financial implications of COVID-19.
UPDATE: on the 1st of May 2020, revised versions of the Tax Bills below were released by the Minister of Finance, for public comment. The amendments have now been included in bold in the article below. We want to reiterate that the below is not intended to be legal or tax advice, and that taxpayers and clients should contact professionals for advice particular to their business.
FROM A TAX PERSPECTIVE…
The National Treasury and SARS have published the following draft legislation in response to the COVID-19 state of disaster and consequent lockdown:
A. The 2020 Draft Disaster Management Tax Relief Bill; and
B. The 2020 Draft Disaster Management Tax Relief Administration Bill.
The measures contained in both bills will take effect from the 1st of April 2020. The bills are open for public comment until the 15th of April 2020.
Revised Bills have been released on the 1st of May 2020 and are available at: https://www.sars.gov.za/Media/Pages/CoronaVirus.aspx
A: Draft Disaster Management Tax Relief Bill (Draft DMTRB)
The Disaster Management Tax Relief Bill introduces various relief measures via the Employment Tax Incentive (ETI) and amendments to the ETI Act. Amendments have also been introduced into the Income Tax Act to provide alleviation to Debt Relief Trusts.
Employment Tax Incentives (ETIs):
Earning thresholds and the corresponding incentives applicable to them have been increased:
In respect of the first 12 months of employment:
i. An employer will be entitled to the sum of R 750 (previously R500) and an amount equal to 50% of the employees’ salary in the case of employees who earn below R 2000.00.
ii. An employer will be entitled to the sum of R1 750 (previously R 1 000.00) in the case of employees who earn between R 2000.00 and R 4500.00.
iii. In the case of employees earning more than R 4500, but less than R 6001, the values applicable to the formula used for calculating the ETI have been increased.
In respect of each of the next 12 months of employment
i. An employer will be entitled to the sum of R 750 and an amount equal to 25% of the employees’ salary in the case of employees who earn below R 2000.00.
ii. An employer will be entitled to the sum of R1 250 in the case of employees who earn between R 2000.00 and R 4500.00, and
iii. In the case of employees earning more than R 4500, but less than R 6001, the values applicable to the formula used for calculating the ETI have been increased.
The values utilised in the formula to calculate the ETI for each of the months of employment after the 24th month of employment in respect of each employee has been increased.
A significant change to the Employment Tax Incentive Act has come with an extension of the age-related qualification criteria. Ordinarily, only employees who were between the ages of 18 and 29 at the end of each month in terms of which the incentive was being claimed would qualify in terms of the incentive.
Under the Bill, employees who are between the ages of 30 and 65 and who previously did not fall under the definition of “qualifying employee” now do, but only in respect of remuneration paid between 01 April 2020 and 31 July 2020.
Employers can claim their employment tax incentives on a monthly basis, as opposed to every 6 months.
The definition of “Monthly Remuneration” has been broadened to include any remuneration paid to a Qualifying Employee in respect of a month, as opposed to the minimum threshold of at least 160 hours of work in order to qualify in terms of the Act. The amendments are deemed to come into effect on the 1st of May in respect of any income paid until the end of July 2020.
Employers who previously did not qualify for the Employment Tax Incentive where they paid their employees R2000.00 (or less) in a month, have now been included as qualifying for the incentive in respect of remuneration paid between 01 April 2020 and 31 July 2020.
The requirement that an employee be employed on or after 01 October 2013 in order to qualify, has been clarified as only applying to employees between the ages of 18 and 29 in respect of remuneration earned up to 31 July 2020.
These amendments now cover employers whose employees are earning less due to the effects of COVID19 on the Labour Sector (such as short-time, reduced wages, etc).
NB: The relief measures relating to ETI do not extend to taxpayers registered as employers after the 1st of March 2020.
Bona fide Donations to the Disaster Relief Fund between 01 April 2020 and 31 July 2020 will be deductible against taxable income for the 2020 tax year.
Trusts established for the purposes of providing disaster relief must be deemed to be public benefit organisations in terms of the Income Tax Act, and therefore subject to special tax dispensations applicable to public benefit organisations.
As from the 31st of July 2020, any COVID-19 disaster relief trust that is not dissolved and which has not had all its assets distributed on or before the 31st of July 2020 must be deemed to be a small business funding entity for the purposes of the Income Tax Act and must be approved as such.
The amendments relating to the Employment Tax Incentive Act do not apply to companies who were registered as employers with SARS after the 1st of March 2020.
Amounts paid to employers from any COVID19 relief organisation, on behalf of their employees, must be deducted from the calculation of remuneration for the purposes of PAYE/UIF/SDL for the period 01 April 2020 to 31 July 2020 (examples include the COVID19 UIF Ters Benefit, or the SAF Trust).
Employers are exempted from liability and payment of SDL for the period 01 April 2020 to 31 August 2020.
B: Draft Disaster Management Tax Relief Administration Bill (Draft DMTRAB)
The Draft DMTRAB introduces relief measures available to qualifying taxpayers and qualifying micro enterprises in relation to:
- Employee’s Tax
- Provisional Tax
- Interim payments by micro businesses
- Extension of time periods.
It is important to know that these Bills and the measures contained in them only apply to qualifying taxpayers, and qualifying micro-businesses, and therefore it is important to first understand what each of these terms means.
A qualifying taxpayer is defined in the Bill as being a trust, partnership, company or individual who is a taxpayer who has a gross income of R50 million (see note) or less during the year of assessment ending on or before 1 April 2020, but before 1 April 2021; who’s gross income for the year of the assessment does not include more than 10% income derived from interest, dividends, foreign dividends, rental from fixed property and any remuneration received from an employer; and who is tax compliant for the purposes of relying on any deferral in the Tax Administration Act.
NOTE: in terms of the Revised Draft DMTRAB the gross income threshold has been increased to R 100 million or less, and the restriction on income, dividend (local and foreign), rental and remuneration has increased to 20%.
Rental for the purposes of the above restriction does not include rental income from fixed properties where that is the primary trade of the taxpayer (i.e where their gross income is comprised primarily of income from rental).
An individual or company which meets the criteria for a micro-business as set out in the Income Tax Act (predominantly a gross income of less than R1 million Rand), who is a taxpayer and who is tax compliant.
The Solidarity Fund is now specifically referred to in the Definitions section of the Bill.
Deferral of Employee’s Tax
Any qualifying taxpayer who was registered as an employer for the purposes of PAYE before the 1st of March 2020 shall be allowed to pay only 80% of the total PAYE due in respect of amounts withheld from remuneration during the period 01 April 2020 to 31 July 2020.
In terms of the revised bill, a qualifying taxpayer registered as an employer is now allowed to defer 35% of their PAYE (thus allowing them to pay only 65% of their liability).
Thereafter, the remaining 20% (now 35%) which is due must be paid by the employer is 6 equal monthly instalments, starting on the 7th of September 2020, and ending on the 5th of February 2021. It appears as if the entire amount deferred, and which is owing to SARS will be divided by 6 and added to the Employer’s PAYE from the 7th of September 2020 to the 5th of February 2021.
There will be no penalties or interest levied against PAYE deferred in terms of the Bill, however if the amounts are not paid when they are due (i.e. from 7 September to 5 February), they will incur interest and penalties.
Deferral of Provisional Tax
Qualifying provisional taxpayers can pay 15% instead of 50% of their estimated liability as their first provisional tax payment, and thereafter 65% of their total estimated tax liability as their second provisional tax payment.
No interest or penalties will run on deferred payments, however the tax that has been deferred (i.e. the remaining 20%) must be paid as a third provisional tax payment at the end of the year of assessment in order to avoid interest running.
Interim Payments by micro-businesses
Similar relief is available to qualifying micro-businesses who are obliged to make interim payments, i.e. payment of 15% as opposed to 50% of their first interim payment, and 65% as opposed to 100% of their second.
The Revised Bill appears to correct an error in time periods, and the above benefit is broken down as follows:
- For the period 01 April 2020 to 31 August 2020 a qualifying micro-business may pay only 15% as opposed to 50% of their assessed interim payments (thus deferring 35%); and
- For the period 01 September 2020 to 28 February 2021, qualifying micro-businesses may pay 65% of their assessed interim payment. A remainder of 20% of the total liability may therefore be deferred, as above.
- All amounts deferred shall be due for payment as set out in a notice of assessment.
- The amounts deferred will be subject to interest and penalties only if not paid when due.
Extension of Time Periods
Some administrative processes contained in the Tax Administration Act and the Customs and Excise Act are subject to specific time periods, and non-compliance may have a significant impact on these processes.
In terms of the Bill, the period of the national lockdown will be counted as dies non. In other words, they will not be counted for the purpose of calculating the applicable time period. It is important to note that the circumstances in which these days will be taken as dies non are set out in detail in the Bill, and you should consult your tax practitioner to see whether the Bill is applicable to your unique circumstances.
More detail has been added with the revised Bills, which must be consulted on a case by case basis.
Donations to the Solidarity Fund
Employers can factor in donations of up to 5 per cent 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 per cent, 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.
Fast-tracking of value-added tax (VAT)refunds
Smaller VAT vendors (falling under either Category A or Category B) which are in a net refund position are temporarily permitted to file VAT returns monthly, as opposed to every 2 months.
The relief is aimed at allowing taxpayers who would ordinarily submit tax returns every 2 months (either under Category A or B) to voluntarily submit returns every month, while at the same time remaining under their respective category, with the view to return to the filing of returns every 2 months after 31 July 2020.
Note: Category B vendors would have to file an additional return in August 2020, to bring them back onto their usual VAT cycle and Category A vendors should be permitted to file in May 2020 instead of waiting until 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 31 July 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 utilisation of carbon offsets as administered by the Department of Mineral Resources and Energy, the filing and payment date will be delayed to 31 October 2020.
Deferral of Excise Taxes on Alcohol 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.
Some Last Notes:
Larger businesses with a gross income of more than R100 million who can show that they cannot make their tax payments as a result of COVID19, may apply directly to SARS for the deferral of any payments without incurring penalties.
In a similar vein, businesses with a gross income of less than R 100 million can approach SARS directly for the deferral of amounts which are not set out in the draft Bills. This may include VAT payments, but clear direction from SARS is advised.
A useful list of FAQs has been made available by SARS on https://www.sars.gov.za/Media/Pages/FAQs—Tax-Relief.aspx.
In addition to the proposed tax relief measures set out above, Government has announced further measures to assist particularly Small, Medium and Micro Enterprises.
SMME DEBT RELIEF FUND
This is a soft-loan facility aimed at qualifying businesses who are directly or indirectly negatively affected by COVID-19. In order to be eligible, the business must have been registered with the CIPC on or before the 29th of February 2020, must be 100% South African owned, and must employ at least 70% South African citizens in its workforce.
Priority will be given to businesses owned by women, young persons and persons with disabilities.
In order to apply for this funding, SMMEs must register on www.smmesa.gov.za. Once issued with a reference number, applicants must fill out the requisite forms, and send these along with the required supporting documentation to [email protected]
SMME GROWTH RESILIENCE FACILITY
The SMME growth resilience facility has been made available to bolster and protect those businesses providing medical and essential services and equipment.
The Business Growth and Resilience Facility is targeted at SMMEs who locally manufacture or supply hygiene and medical products that are in demand in order to curb and manage the spread of the COVID-19 virus. These are products such as sanitizers, detergents and tissue paper. This facility will offer working capital, stock, bridging finance, order finance and equipment finance. The funding amount will be based on the funding needs of the actual business. Find more info and application forms at www.smmesa.gov.za.
SAFT TRUST (SOUTH AFRICAN FUTURE TRUST – SAFT)
This Trust was established by the Oppenheimer family, to extend direct financial support to SMME employees who are at risk of losing their jobs or will suffer a loss of income because of COVID-19.
SAFT will transfer funds directly to employees of participating SMMEs, via interest-free loans where employees themselves carry no liability.
Loans will be extended to eligible SMMEs on a first-come-first-served basis.
Eligible SMME employers apply for the scheme via their preferred partner bank and provide a list of names of employees “at risk” due to COVID-19. The SMME must be an existing client of the partner bank in order to apply. To qualify businesses must have an annual turnover of less than R25 million, have been a sustainable business on the 29th of February 2020, be negatively affected by COVID-19 and have been trading for at least 24 months prior to shut down.
Partner banks are: ABSA, FirstRand Bank, Nedbank and Standard Bank.
SAFT has set the eligibility criteria for the loans, in consultation with their banking partners. However, the ultimate decision on whether or not to extend a loan and who will receive the funds will rest with the banks.
SAKUMA RELIEF PROGRAMME
Newly announced by the Rupert family, this programme is designed to help ailing SMMEs.
For close corporations, companies, and trusts, financial aid in the form of an unsecured interest-bearing loan of between R250, 000 and R1 million coupled with a non-repayable grant of R25, 000 per qualifying business has been made available.
The loan portion will be interest free for 12 months with no repayment obligations during this period. The loan is repayable after 12 months, and incurs interest at the prime rate from month 13, once the business is on its feet. The money can be used to cover payroll, rental, and other monthly operating overheads. There is no security requirement for the loan.
For formal sole proprietors, a grant of R25, 000 per qualifying business to be used to pay for overheads is available. To qualify for financial aid, the business must show evidence that it was financially active prior to the COVID-19 outbreak and be compliant.
Businesses can apply through: https://finance.businesspartners.co.za/
SECTOR SPECIFIC RELIEF
In addition to the broadly applicable measures, outlined above – various stakeholders have concluded agreements (both with government and between the various member organisations) in terms of which specific relief is being made available to businesses who fall under these sectors.
Businesses in various sectors should enquire about relief aimed specifically at the sectors which they occupy.
PRIVATE SECTOR ASSISTANCE
- Standard Bank
From 1 April 2020, Standard Bank will support small and medium-sized enterprises (SMEs) with a payment holiday for 90 days (01 April 2020 until 30 June 2020) – restructuring payments for the repayment to come into effect after the 90-period. https://www.standardbank.co.za/southafrica/personal/campaigns/covid-19
- ABSA Bank
From the 1 April 2020, ABSA’s corporate and business clients will be offered solutions based on their unique requirements and operations. For retail clients, the ABSA relief programme incorporates a three-month payment holiday and allows customers to reduce their monthly repayments. https://www.absa.co.za/media-centre/press-statements/2020/dealing-with-the-impact-of-covid-19/
- First National Bank
From 1 April to 30 June 2020 aimed at providing relief to individual and business FNB customers whose financial stability has been impacted by Covid-19 pandemic. https://www.fnb.co.za/press-office/index.html
No specific relief policy for businesses or customer are currently in place. Customers are encouraged to contact the bank directly if they are in financial distress due to Covid-19. Call 086 055 5111.
The Property Industry Group (PI Group) have published guidelines and details on financial assistance for retail tenants.
The PI Group is comprised of various commercial property stakeholders, and speaks in general for the commercial real estate industry.
In terms of the Guidelines, the group recommends that retail tenants who are affected by COVID19 and the continued lock down should be awarded certain rental discounts and deferrals.
This is an incredibly recent occurrence, and retail tenants are advised to approach their landlords to apply for this relief as set out in these guidelines.
A copy of the press release relating to the guidelines may be accessed at https://sareit.prowly.com/94420-the-property-industry-group-increases-its-retail-tenant-assistance-and-relief-guidelines.
RELIEF FOR EMPLOYEES
COVID-19 TERS (Disaster Fund) and UIF
In addition to the measures introduced by National Treasure and SARS, the Department of Labour, via the UIF, has made a substantial amount of money available via the COVID-19 TERS facility.
In terms of this facility, employers whose employees have been placed on short time, or who have been temporarily retrenched, may apply to the UIF for a benefit to be paid to their employees, via the company. The benefit may be a minimum of R 3500.00 per month, per employee, or between 38% and 68% of the benefit the employee would have received if they had been completely unemployed.
The COVID19 TERS UIF benefit application process has been moved online and has been simplified significantly. Employers are still permitted to file claims for April (as at 03 May 2020) and are encouraged to do so as quickly as possible. The online application portal may be accessed at https://uifecc.labour.gov.za/covid19/covid19.
Employees may also continue to apply for ordinary UIF benefits, depending on their individual circumstances at www.ufiling.co.za. NB: an employee cannot apply for ordinary UIF benefits and qualify for the COVID19 TERS benefit at the same time. We encourage employers to determine whether their employees still have any active or open claims. More information on UIF may be found at www.labour.gov.za/uif or by calling 0800 003 0007.
Guidelines issued by the Compensation Commissioner on the 20th of March 2020 indicate that COVID-19 will be considered an occupational disease in certain circumstances.
There is a procedure to follow, and if the fund accepts responsibility, it will pay the affected employee’s medical expenses and up to 30 days of sick leave compensation. This does not include the employee staying at home because of the national shut down, only if they are diagnosed with COVID-19 as a result of varying degrees in risk of exposure at the workplace.
More information on Compensation for Occupational Injuries and Diseases can be found at www.labour.gov.za.