In line with President Cyril Ramaphosa’s address to the nation on April 21, Finance Minister Tito Mboweni has provided more detail on the second set of tax measures aimed at assisting individuals and businesses through the pandemic.
The statement from the National Treasury states that it “recognises that the short-term interventions announced in the first fiscal package do not go far enough in assisting businesses or households through the crisis – especially as the lockdown has since been extended”.
As such, it indicates in an April 23 statement that “assisting businesses now will ensure that our economy is in a better position to recover once the health crisis starts to subside. If businesses survive this testing time, the economy will be better placed to strive collectively towards economic growth that is inclusive (providing more opportunities for employment) and revenue generation (so that we are able to work towards improving the state of our fiscus)”.
The measures announced earlier this week are expected to provide about R70-billion in support, either through reductions in taxes otherwise payable or through deferrals of tax payments for tax compliant businesses.
The interventions include a skills development levy holiday for four months starting on May 1, to assist businesses with cash flow. This provides relief of about R6-billion.
Treasury also announced the fast-tracking of value-added tax (VAT) refunds, which will allow smaller VAT vendors that are in a net refund position to be temporarily permitted to file monthly instead of once every two months, thereby unlocking the input tax refund faster and immediately helping with cash flow.
The South African Revenue Service (Sars) is working towards having a system in place for Category A vendors to file in May instead of June.
Further, a three-month deferral for filing and first payment of carbon tax liabilities has also been implemented. The filing requirement and the first carbon tax payments were previously due by July 31.
However, to provide additional time to complete the first return, as well as cash flow relief in the short term, and to allow for the use of carbon offsets as administered by the Department of Mineral Resources and Energy, the filing and payment date will be delayed to October 31, thereby providing cash flow relief of close to R2-billion.
There will also be a deferral for the payment of excise taxes on alcoholic beverages and tobacco products owing to the restrictions on the sale of alcoholic beverages and tobacco products. Payments that are due in May and June will be deferred by 90 days for excise-compliant businesses to more closely align tax payments through the duty-at-source system with retail sales.
This is expected to provide short-term assistance of about R6-billion.
Additionally, government has postponed the implementation of some of the measures announced in the 2020 National Budget, such as the broadening of the corporate income tax base by restricting net interest expense deductions to 30% of earnings; and limiting the use of assessed losses carried forward to 80% of taxable income.
Both measures were to be effective for years of assessment commencing on or after January 1, 2021, but will now be postponed to January 1, 2022.
Further, government will be increasing the expanded employment tax incentive amount where the first set of tax measures provided for a wage subsidy of up to R500 monthly for each employee who earns less than R6 500 a month.
This amount will be increased to R750 a month at a total cost of about R15-billion.
There will also be 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% of their employees’ tax liabilities over the next four months (ending July 31) 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% and the gross income threshold for both deferrals will be increased from R50-million to R100-million, providing total cash flow relief of about R31-billion with an expected revenue loss of R5-billion.
A case-by-case application to Sars for the waiving of penalties will also be implemented, where larger businesses (with gross income of more than R100-million) that can show they are incapable of making payment owing to the Covid-19 disaster, may apply directly to Sars to defer tax payments without incurring penalties.
Similarly, businesses with gross income of less than R100-million can apply for an additional deferral of payments without incurring penalties.
Treasury has also announced tax measures aimed at assisting individual taxpayers and to provide financial backing from the fiscus to donate to the Solidarity Fund through increasing the deduction available for donations to the Fund, among others.
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.
Treasury is allowing adjustments to pay-as-you-earn donations made through the employers, who can 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 of up to 33.3%, depending on the employee’s circumstances, will be provided for a limited period for donations to the Solidarity Fund. This is intended to lessen cash flow constraints for employees who donate to the Solidarity Fund.
Access to living annuity funds will also be expanded. In this regard, individuals who receive funds from a living annuity will temporarily be allowed to immediately either increase (up to a maximum of 20% from 17.5%) or decrease (down to a minimum of 0.5% from 2.5%) the proportion they receive as annuity income, instead of waiting up to one year until their next contract “anniversary date”.
This will assist individuals who either need cash flow immediately or who do not want to be forced to sell after their investments have underperformed.
The above measures will be given legal effect in terms of changes to the two bills – the Draft Disaster Management Tax Relief Bill and the Draft Disaster Management Tax Relief Administration Bill.
Together with the Sars Commissioner, Treasury intends to also monitor developments and the need for any further requirements to assist with Covid-19 relief efforts.