COVID-19 Tax Relief Measures

The National Treasury has issued an explanatory note on the additional COVID-19 tax relief measures which will be included in revised drafts of the 2020 Disaster Management Tax Relief Bill and Disaster Management Tax Relief Administration Bill which are expected to be released on 30 April for comment. The following proposals are put forward for comment.

Increase in the Expanded Employment Tax Incentive Amount Allowable

The amount of R500 per month for each employee that earns less than R6500 per month to be increased to R750 per month.

Increasing the proportion of the deferred amount of employees’ tax liability and the gross income limit for tax compliant small to medium sized businesses

In order to provide relief to tax compliant small to medium sized businesses, the following tax measures are proposed:

• The proportion of PAYE that can be deferred without SARS imposing administrative penalties and interest for the late payment thereof, is increased from 20% to 35%
• The annual turnover threshold for these businesses is increased from R50 million to R100 million. Individuals will be eligible if no more than 10% of their gross income is derived from interest, dividends, foreign dividends, rental from letting fixed property, and any remuneration received from an employer.

Increasing the gross income limit for deferral of the payment of provisional tax liability for tax compliant small to medium sized businesses

It is proposed that the annual turnover limit for tax compliant small or medium sized businesses should be increased from R50 million to R100 million. The proposed amendments are deemed to have been in place from 1 April 2020 and apply to first provisional tax periods ending on or after 1 April 2020 but before 1 October 2020 and to second provisional tax periods ending on or after 1 April 2020 but before 1 April 2021.

Skills development levy contribution holiday

To assist with cash flow issues arising out of COVID-19 and the resultant Lockdown, and to alleviate the burden of payroll taxes in the short term, a four-month holiday for skills development levy contributions by employers is proposed. This proposal applies to the period of 1 May 2020 until 31 August 2020.

Expanding access to living annuity funds

To assist individuals who need cash flow immediately or who do not want to be forced to realise living annuity investments that have underperformed, Government proposes the expansion of access to living annuities for the period of 1 May 2020 until 31 August 2020 as follows:

• Allowing individuals who receive funds from a living annuity to temporarily immediately either increase (to a maximum of 20% from 17.5%) or decrease (to a minimum of 0.5% from 2.5%) the proportion they receive as annuity income, instead of waiting until their next contract “anniversary date”
• Allowing individuals to adjust their drawdown rates at any time during this period (irrespective of whether the contract’s’ anniversary date falls within this period)
• Any elections made during this period only applicable for the period in question. The lapsing of this period will result in the drawdown rates automatically reverting to the rates applicable before said election.

Government additionally proposed an amendment as follows:

• The R50 000, which is the minimum value of the annuity or part of the retirement interest which an individual can withdraw in the event that there was any previous lump sum commutation in the fund, and R75 000 in any other case be replaced by a single-threshold of R125 000 to be applied as the de-minimis amount.
• The proposed amendments to the de-minimis amounts will continue to apply after the four month period.

Increasing the deduction available for donations made to Solidarity Fund

It is proposed that the tax-deductible limit for donations to the Solidarity Fund be increased from 10% of taxable income to 20%. This applies to donations in cash or of property donated and actually paid or transferred at the end of the donor’s year of assessment during the 2020/21 tax year.

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 2020/21 tax year. Any donations over the limit made during the 2020/21 tax year will be carried forward and deemed to be a donation made in the succeeding year of assessment (2021/22) and subject to 10% limitation in that year.

For individuals, these proposals are deemed to have come into operation on 1 April 2020 and apply until 28 February 2021. For companies, the proposals will come into operation on 1 April 2020 and apply until the years of assessment ending on or after 1 January 2021.

Adjusting pay as you earn for donations made through the employer to the Solidarity Fund

To alleviate cash flow difficulties of employees where their employers contribute to the Solidary Fund on their behalf, Government is proposing a special relief measure by temporarily increasing the current 5 per cent tax limit in the calculation of monthly PAYE of the employee. An additional limit of up to a maximum of 33.3% for three months or 16.66% for six months, depending on an employee’s circumstances, will be available.

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. 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.

This proposed amendment is deemed to have come into operation on 1 April 2020 until 30 September 2020.

Fast-tracking of VAT refunds

In terms of the VAT Act, a vendor may apply in writing to the Commissioner to be registered under Category C, thereby permitting such vendor to file and account for VAT on a monthly basis. This change in category must be effected via an application to SARS by the vendor in writing. This approach provides vendors with the option of changing their filing category monthly.

The proposal is to temporarily permit vendors to file their returns monthly, while still remaining under Category A or B. This option will be made available to all Category A and B vendors who may choose to temporarily file their VAT returns monthly or continue to file bi-monthly returns.

The proposal will benefit vendors that are in a net refund position, thereby improving cash flow. It is proposed that this filing option be effective for a limited maximum of four tax periods. After this period, vendors registered under Category A or B will no longer be able to file returns on a monthly basis, unless such vendor makes an application to SARS for a change in category.

Category A vendors will be permitted to file monthly returns for the April and May tax periods and June and July 2020 tax periods, should such vendor choose to do so.

Category B vendors will be permitted to file monthly returns for the May and June tax periods and July 2020 tax period, should such vendor choose to do so. Should a Category B vendor choose to file a monthly return for July 2020, a monthly return for August 2020 will be required to return the vendor to the normal bi-monthly return cycle.

Deferral for the payment of excise duties on alcoholic beverages and tobacco products

In order to minimise cash flow difficulties for the manufacture of alcoholic beverages and tobacco products, it is proposed that the manufacturers in these industries continue to submit their excise duty accounts on time but that the payments due to SARS be deferred for a period of 90 days without incurring interest or penalties. Manufacturers will qualify for such deferment provided they have no outstanding excise accounts or payments unless an arrangement has been made for such payments. The proposed deferral will apply to payments due in the months of May and June and will be for a period of 90 days.

Deferral of first carbon tax payment and filing of tax returns

To provide cash flow relief and to alleviate some of the compliance burden on taxpayers, a three-month deferral of the first period for submission of accounts and carbon tax payments is proposed. The amendments to the rules of the Carbon and Excise Act will change the 2019 period for submission of accounts and carbon tax payments from 31 July 2020 to 31 October 2020.