The impact of the COVID-19 pandemic has had far reaching implications on the South African economy and businesses, big or small. The true spirit of South Africans has come to the fore though and we have seen general society and Government quickly respond to deal with the hardships that have quickly become evident. Government has implemented various concessions to assist with the alleviation of the cash flow burden that tax compliant small to medium sized businesses may suffer arising as a result of the COVID-19 outbreak. The following concessions will be for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020:
- Deferral of 35% of the payment of PAYE liability, without SARS imposing administrative penalties and interest thereon.
- The deferred PAYE liability must be paid to SARS in equal instalments over a period of 6 months commencing on 01 August 2020, i.e. the first payment must be made on 07 September 2020.
Treasury has proposed the following changes to the qualifying criteria for the Employment Tax Incentive scheme during this concession period:
- The Maximum ETI claimable per qualifying employee is increased to R1 750 in the first year of employment and to R1250 in the second year of employment.
- Employers to be allowed to claim an ETI amount of R750 for employees who are between the ages of 18 and 29 years and are no longer eligible for ETI as the employer has claimed ETI in respect of those employees for 24 months (First new category).
- Employers to be allowed an ETI amount of R750 for employees who are between the ages of 30 and 65 years who earn less than R6 500 (Second new category) and
- The payment of ETI reimbursements to be made monthly instead of twice a year.
Provisional Tax has been addressed by the provision of the following concessions:
- Deferral of the portion of the first and second provisional tax payments to SARS, without SARS imposing administrative penalties and interest for late payment of the deferred amount.
- The first provisional tax payment (due from 01 April 2020 to 30 September 2020) to be based on 15% of the total estimated liability and the second provisional tax payment (due from 01 April 2020 to 31 March 2021) to be based on 65% of the total estimated liability.
- The deferred amount must be paid when making third provisional tax payment (top-up) to avoid interest being charged.
The requirements to be met for the above proposed tax relief are as follows:
- Annual turnover not exceeding R100m
- The company must be fully tax compliant (No outstanding returns, no outstanding tax debt other than a debt of less than R100 suspended debt or debt subject to the instalment payment agreement.
A Skills Development Levy (SDL) holiday was introduced in the second wave of concessions. From 1 May 2020, there will be a four-month holiday for SDL contributions (1% of total salaries) to assist all businesses with cash flow. All employers who are registered for SDL will automatically qualify for the SDL payment holiday. The zero amount SDL liability will be defaulted on the relevant EMP 201 returns.
The tax deductible limit for donations (currently 10% of taxable income) will be increased by an additional 10% for donations to the Solidarity Fund during the 2020/21 tax year. Therefore, there will be a limit of 10% for any qualifying donations (including donations to the Solidarity Fund in excess of its specific limit) and an additional 10% for donations to the Solidarity Fund.
The 20% tax-deductible limit for donations will apply only to donations made during the 2020/2021 tax year. Any donations over the limit made during the 2020/2021 tax year will be carried forward and deemed to be a donation made in the succeeding year of assessment (2021/2022) and be subject to the 10% limitation in that year.
The donations thresholds have also been increased at payroll level. Employers can traditionally factor in donations of up to 5% of an employee’s monthly salary when calculating the monthly employees’ tax to be withheld. An additional percentage that can be factored in up to 33.3%, depending on the employee’s circumstances – will be provided for a limited period for donations to the Solidarity Fund.
This will ensure that the employee gets the deduction that is in excess of 5% much earlier than under normal circumstances and will therefore not have to wait until final assessment to claim a potential refund, provided the donation is made to the Solidarity Fund.
However, it is important to note that a final determination must still be made upon assessment as the employee may have other income, deductions, or losses that impact the final taxable income before the deduction of donations.
If these concessions are utilised effectively the cashflow injection into companies will go a long way to assisting such entities get through these trying times. The concessions must be managed correctly though as any slip ups could cost the company in terms of penalties and interest.