02 Apr 2020

Tax Measures to Combat the COVID-19 Pandemic

by Anton Lockem, Partner, Durban, Chrichan de la Rey, Senior Associate, Durban,
Practice Area(s): Tax |

The draft Disaster Management Tax Relief Bill and draft Disaster Management Tax Relief Administration Bill (“the Bills”) have been released for comment. The Bills are to provide for the tax relief measures announced by the President in order to assist with alleviating cash flow burdens on tax compliant small to medium sized businesses arising as a result of the COVID-19 pandemic and lockdown, and to provide for matters connected therewith. Most of the provisions of the Bills are to apply retrospectively from 1 April 2020.

The measures contained herein must be applauded and speaks to a well-co-ordinated response between the Legislative and Executive function, in a time of crisis. Taxpayers likewise are encouraged to meet their tax compliance obligations.

This article briefly deals with these tax relief measures. For a further analysis of whether these measures apply to you, please do not hesitate to contact our tax team.

Deferral of The Payment of Employees’ Tax for Qualifying Taxpayers:

This relief applies to a “Qualifying Taxpayer” that is registered as an Employer by 1 March 2020.

A “Qualifying Taxpayer” is a company, trust, partnership or individual that has a gross income of R50 million or less during the year of assessment ending on or after 1 April 2020 but before 1 April 2021, where that gross income does not include more than 10% income from interest, dividends, foreign dividends, rental from letting fixed property and any remuneration received from an employer. The Employer must be tax compliant.

The draft Disaster Management Tax Relief Bill proposes that Qualifying Employers will be able to defer 20% of their employees’ tax liabilities due and payable for the period 1 April 2020 to 31 July 2020, without penalties and interest.

The 20% deferral will be in equal instalments over 6 months from 1 August 2020 i.e. the first instalment must be paid by 7 September 2020 and the last payment must be paid by 5 February 2021.

Deferral of Payment of Provisional Tax Liabilities for Qualifying Taxpayers:

The draft Disaster Management Tax Relief Bill propose that “Qualifying Taxpayers” will be able to defer their first and second provisional tax liabilities as follows:

  • first provisional tax payment will be based on15% of the estimated total tax liability for the year of assessment; and
  • the second provisional tax payment will be based on 65% of the estimated total tax liability for the year of assessment; and
  • 100% of the estimated tax liability will need to be paid by the third provisional top-up date to avoid interest on underpayment of provisional tax. The due date for the third provisional top up payment is 30 September for taxpayers with February year-ends and 6 months after the end of the financial year for all other year ends.

The above relief will apply to:

  • First provisional tax periods commencing 1 April 2020 and ending 30 September 2020; and
  • Second provisional tax periods commencing 1 April 2020 and ending on 31 March 2021.

Deferral of interim payments by Qualifying Micro Business (“QMB”):

Paragraph 11 of the Sixth Schedule to the Income Tax Act (“the ITA”) provides for QMB’s (as defined) to within 6 months of the tax year end, estimate the taxable turnover for the year, calculate the amount of tax to be due (“the 1st Calculated Tax”) and pay 50% thereof. QMB’s are required to redo this exercise by the last day of the tax year and pay the balance of the tax (being the 2nd Calculated Tax less what was already paid).

The Bill envisages the same relief of 15% / 65% as applicable to provisional taxpayers, to apply to QMB’s. The relief will only apply to QMB’s who are tax compliant and no penalties or interest will be levied on the amounts deferred.

From 01 April 2020 until 30 September 2020, QMB’s are required to pay 15% as apposed to the 50% of the 1st Calculated Tax.

During the period 01 April 2020 and 28 February 2021, QMB’s are required to pay 65% of the 2nd Calculated Tax, as opposed to the balance.

Extension of Time Periods:

The Tax Administration Act requires a taxpayer and sometimes SARS to perform certain actions or to do things within prescribed time periods. The draft Disaster Management Tax Relief Bill provide that the 21-day lockdown period will be regarded as dies non, i.e. a day that has no legal effect, and which will not be counted for purposes of the calculation of the listed time periods. Some of these include relief in respect notices and time periods relating to:

  • field audits, interviews, inquiries and execution of warrants.
  • the application of rulings.
  • the prescription and finalising of assessments.
  • dispute resolution, which include the time periods within which taxpayers must file objections and appeals during the ADR process and subsequent litigation.

This above is intended to provide individuals and businesses impacted by COVID-19 with additional time to comply with selected tax obligations or due dates that are affected by or fall within the lockdown period but does not extend to return filing or payments.

The Taxation Laws Administration Act, 2019, introduced the 5-year validity period of beneficial owner declaration forms for SA withholding tax purposes. It comes into effect on 1 July 2020. Given the effective deadline date of 1 July 2020 and the impact of COVID-19 measures internationally and locally, in particular the national lockdown, this date is extended for three months to 1 October 2020.

Time periods have also been extended for time periods prescribed under the Customs and Excise Act.

COVID-19 Disaster Relief Trusts:

The Draft Disaster Management Tax Relief Bill specifically addresses the tax consequences of COVID-19 Disaster Relief Trusts (“Relief Trust”).

Relief Trust means any trust that was established for the sole purpose of disaster relief in respect of the COVID-19 pandemic.

Any bona fide payment made on or before 31 July 2020 to a Relief Trust by a taxpayer will be allowed to be deducted from the taxable income of the donor, as in accordance with section 18A of the ITA.

Correspondingly, from 01 April 2020 until 31 July 2020, any Relief Trust will be deemed to be a public benefit organisation (“PBO”) provided the Relief Trust carries on a public benefit activity. The Relief Trust will be deemed to be approved as a PBO subject to complying with all the conditions and the Commissioner’s power to withdraw the deemed approval.

After 31 July 2020, should the Relief Trusts not dissolve according to section 30(3)(b)(iii) of the ITA, the Relief Trust must be deemed to be, and be deemed to be approved to be, a small business funding entity (as contemplated per section 30C)

Amounts received or accrued from a Relief Trust, between 01 April 2020 and 31 July 2020, will not be subject to employees’ tax.

We wish all our clients a safe lockdown period and look forward to continuing to provide uninterrupted services.