Update: Further Tax Relief Announced for Businesses
05 May 2020
On 1 May 2020, revised COVID-19 Draft Tax Bills (‘the Bills’) were released for public comment. These are the 2020 Draft Disaster Management Tax Relief Bill (‘the tax relief Bill’) and the 2020 Draft Disaster Management Tax Relief Administration Bill (‘the tax relief administration Bill’). The Bills contain the tax reliefs to ameliorate the financial effects of the pandemic on businesses and employees. It is encouraging to see that a number of BDO’s recommendations have been incorporated into the revised Drafts, although a number of our concerns have still not been addressed.
Of particular interest are the following:
- A 4 month Skills Development Contribution (SDL) payment holiday. SDL is a form of payroll tax that funds the activities of SETAs (sectoral education and training authorities) and takes the form of a 1% contribution of remuneration by an employer. By ‘holiday’, the tax relief Bill envisages a suspension of liability to pay the levy and not merely a deferral. It appears that the 4 month holiday applies to remuneration paid or payable in the 4 month period from 1 May to 31 August 2020, that is, in respect of May to August’s payrolls.
- The fast tracking of VAT refunds. Category A and B VAT vendors, who file bi-monthly VAT returns and who are in a net refund position will be temporarily permitted to file monthly instead of once every two months. This should unlock input tax refunds faster and help the vendors with their cash flow. Category A vendors, who would otherwise only file a combined return for the April and May VAT periods and the June and July VAT periods, will be allowed to file monthly returns for these periods if they choose to do so. Similarly, Category B vendors, who would otherwise file combined returns for the May and June and July and August VAT periods will be allowed to file monthly returns for these periods. This dispensation only applies for a four month period: for the VAT periods from 1 April to 31 July 2020.
- A 3 month extension in filing and first payment of Carbon Tax due. This is welcomed as it has proved to be extremely difficult to register for the Carbon Tax, with the first payment of the tax that was to be due by 31 July 2020 now extended to 31 October 2020.
- A 90 day deferral of payment of excise taxes on alcoholic beverages and tobacco products. Payments that are due in May 2020 and June 2020 will be deferred by 90 days for excise compliant businesses. This is to more closely align tax payments with retail sales of these products. Manufacturers in these industries are however still required to file their excise duty returns on time.
- Expanding access to living annuity funds while at the same time assisting individuals who do not want to be forced to realise living annuity investments, given the current depressed state of the stock market. It is proposed that for a limited period of 4 months from 1 May to 31 August 2020, individuals will be permitted to temporarily either increase (up to a maximum of 20% from 17.5%) or decrease (down to a minimum of 0.5% from 2.5%) their draw down rates on living annuities. Thereafter, the draw down rates will automatically revert to the rates that the individual elected at the previous annual anniversary of the policy.
- An additional Employment Tax Incentive (ETI) amount of up to R750 per month per qualifying employee will be claimable. This relates to employees who earn remuneration of less than R6 500 per month. Provided that the employee earns less than R6 500 per month, an additional amount will be claimable, regardless of the age of the employee or whether he or she is outside of the normal 24 month period in which ETI incentives can be claimed. These proposals will apply to amounts claimable during the 4 month period from 1 April to 31 July 2020. In addition, ETI reimbursements payable by SARS will be accelerated from twice a year to monthly. The above relief will only apply to employers that were registered with SARS at 1 March 2020 and that are not in default in relation to any outstanding returns or outstanding tax debt.
- Small and medium-size employers will be allowed to defer 35% of their PAYE payments for the 4 months from April to July 2020 and pay the amount deferred in 6 equal monthly instalments commencing with the payment due in early September without incurring penalties. The limit for determining what constitutes a small and medium-size taxpayer, which the tax relief administration Bill refers to as a ‘qualifying taxpayer’, will be set at a maximum gross income level of R100 million for the year of assessment that ends on or after 1 April 2020 but before 1 April 2021. Additionally, not more than 20% of such gross income can comprise an aggregate of interest, dividends, foreign dividends, royalties, rental from letting fixed property, annuities and remuneration. However, if the letting of fixed properties is the primary trading activity and substantially the whole of the gross income is rental from fixed properties, then the earning of rental income will not disqualify the taxpayer. The qualifying taxpayer can be a company, trust, partnership or individual. The taxpayer must be tax compliant at the time it seeks to rely on the relief.
- The amended limit and other criteria (referred to immediately above) for determining whether a business is a ‘qualifying taxpayer’ as defined will also apply to the proposal that such businesses can defer portion of their provisional tax payments. Under the proposal, a 1st provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15% (and not 50%) of the estimated total tax liability for the year and a 2nd provisional tax payment due from 1 April 2020 to 31 March 2021 will be based on 65% (and not 100%) of the estimated total tax liability for the year.
- Donations by taxpayers to the Solidarity Fund will be tax-deductible up to an additional 10% of the donor’s taxable income. Under existing legislation, taxpayers qualify for a deduction of up to 10% of their taxable income for donations to certain approved Public Benefit Organisations. This would include the Solidarity Fund and other approved Public Benefit Organisations, such as COVID-19 disaster relief organisations, that are approved by SARS. In terms of the tax relief Bill, such donations have to be paid by 31 July 2020 in order to qualify. In addition, the ‘payroll-giving’ provision that currently allows an employer to take into account tax deductible donations by an employee up to 5% of the monthly remuneration will be amended. It will allow for up to 33.3% monthly for 3 months (from April to June 2020) or 16.66% for 6 months (from April to September 2020) of the monthly remuneration to be reduced for qualifying donations to the Solidarity Fund when calculating the employee’s PAYE. We would like to see the income tax deduction limit on all donations to COVID-19 disaster relief organisations increased, not only to the Solidarity Fund.
- The days included in the national lockdown period from 26 March to 30 April 2020 will not count for a variety of administrative provisions that require action within a certain number of business days, the most important of which is probably the dispute resolution rules under section 103 of the Tax Administration Act.
- Taxpayers will also be given an additional 3 months in which to renew withholding tax declaration and undertaking forms that will be deemed to have expired after 5 years, once a 2019 tax amendment to this effect was to come into effect on 1 July 2020. The new date on which this amendment will come into effect is therefore proposed to be 1 October 2020.
Unfortunately no clarity has to date been provided by SARS as to how it will approach the announcement in the Media Statement of 23 April that it will entertain direct applications for deferral of tax payments by businesses with taxable incomes in excess of R100 million. The announcement stated that such applications would be considered on a case-by-case basis, provided the business can show that it is ‘incapable of making payment due to the COVID-19 disaster’. It was also stated that businesses with gross income of less than R100 million could apply for an additional deferral of payments without incurring penalties and equally no clarity in relation to this has been provided by SARS.
Then the 2020 Budget announced income tax base-broadening measures. These measures were to have the effect of (i) restricting net interest expense deductions to 30 per cent of earnings; and (ii) limiting the use of assessed losses carried forward to 80 per cent of taxable income. It has been announced that these measures, which were to become effective for years of assessment commencing on or after 1 January 2021, will be postponed to at least 1 January 2022. This postponement is welcomed, especially given the current economic climate.
The Bills are open for public comment until 15 May 2020. There are still a number of issues with the current versions and BDO will provide its comments to SARS and National Treasury. Hopefully these amendments will be embodied in the final version.
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