Revised Bills: Further Tax Relief Measures to Combat the COVID-19 Pandemic

Following the address by President Cyril Ramaphosa on 21 April 2020, National Treasury announced further tax relief measures to assist with job retention and to support businesses that may be experiencing significant distress during the COVID-19 pandemic.

To give effect to the further tax relief measures, on 1 May 2020 National Treasury and the South African Revenue Service published the revised draft Disaster Management Tax Relief Bill and draft Disaster Management Tax Relief Administration Bill (“the revised Bills”) for public comment.

These further tax relief measures extend the scope and application of the original relief measures that were first published in the Bills as well as introduce new relief measures. These measures are welcome as the COVID-19 outbreak coupled with the extended nation-wide lockdown continues to have a significant impact on cashflows of businesses.

This article briefly deals with these further tax relief measures.

NEW TAX RELIEF MEASURES

Skills Development Levy:

Employers that are registered with SARS for PAYE with an annual payroll in excess of R500 000, unless one of the exemptions apply, are required to make monthly skills development levy contributions (“SDL contributions”).

The SDL contributions are calculated at one per cent of the monthly payroll of the employer and are due and payable by the seventh day of the following month.

In order to assist with alleviating any cash flow burden arising as a result of the COVID-19 outbreak and lockdown as well as reducing the burden of payroll taxes in the short term, Government proposes a four-month holiday (non-payment) for skills development levy contributions (1 per cent of monthly payroll) made by employers, beginning 1 May 2020 and ending on 31 August 2020. This is a suspension, not a deferral, as a result, employers will not become liable for these amounts after 31 August 2020.

This proposed amendment will apply for a limited period of four months and will come into operation on 1 May 2020 and end on 31 August 2020.

Expanding access to living annuity funds:

Paragraph (b) of the definition of Living Annuity in section 1(1) of the Income Tax Act makes provision for the Minister to issue a notice in the Government Gazette prescribing the formula for determining the minimum and maximum draw down rates used to calculate the amount that an individual is entitled to receive from a living annuity.

In terms of GN290, Government Gazette 32005 of 11 March 2009, the amount referred to above is determined to be not less than 2,5 per cent and not more than 17,5 per cent of the value of the assets in respect of a living annuity contract entered into on or after 21 February 2007, and not less than 5 per cent and not more than 20 per cent of the value of the assets in respect of a living annuity contract entered into before 21 February 2007. In turn, this Notice makes provision for the individual to revise the selected draw down rate once a year, on the anniversary date of the contract’s inception.

Further, in terms of GN1164, Government Gazette 31554 of 30 October 2008, the minimum value of the annuity or part of the retirement interest which an individual can withdraw is currently an amount of R50 000 in the event that there was a previous lump sum commutation in the fund and R75 000 in any other case.

In order to assist individuals who either need cash flow immediately or who do not want to be forced to realise living annuity investments that have underperformed, Government proposes amending GN290, Government Gazette 32005 of 11 March 2009 by expanding access to living annuities for a limited period of four months, beginning 1 May 2020 and ending on 31 August 2020 as follows:

  • Allowing individuals who receive funds from a living annuity to temporarily immediately either increase (up to a maximum of 20 per cent from 17.5 per cent) or decrease (down to a minimum of 0.5 per cent from 2.5 per cent) the proportion they receive as annuity income, instead of waiting up to one year until their next contract “anniversary date”;
  • Allowing individuals to adjust their draw down rates at any time during this period (irrespective of whether or not the contacts’ anniversary date falls within the said period); and
  • Any elections made during this period will only be applicable for the above mentioned four-month period. The lapsing of this period will result in the draw down rates automatically reverting to the rates applicable before said election.

In addition, Government proposes to amend GN1164, Government Gazette 31554 of 30 October 2008 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; and
  • The proposed amendments to the de-minimis amounts to R125 000 is deemed to have come into operation on 1 March 2020 and will not be limited to the four-month period but will continue to apply thereafter.

Fast tracking of VAT refunds:

In the revised Bills a provision is included to permit vendors currently registered under either category A or category B, i.e. vendors currently required to submit VAT returns bi-monthly, to temporarily file their returns on a monthly basis, thereby being able to submit their VAT refund returns more frequently and unlocking any refunds due to the vendor faster.

This proposal will benefit vendors that are in a net refund position, thereby improving the cashflow situation of such businesses. It is proposed that this filing option be effective for a limited maximum of 4 tax periods to assist during this crisis period. 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 in terms of section 27(3)(b) of the VAT Act.

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.

This proposed amendment is deemed to have come into operation on 1 May 2020 and relate to the tax periods beginning 1 April 2020 and will remain in operation until the tax period ending the end of July 2020.

Increase in the deduction available for donations to the Solidarity Fund:

Section 18A of the Income Tax Act makes provision for a taxpayer who has made a bona fide donation in cash or of property in kind to a section 18A-approved organisation to be allowed a deduction from taxable income if the donation is supported by the necessary section 18A receipt issued by the organisation. The amount of donations which may qualify for a tax deduction is limited to 10 per cent of the taxpayer’s taxable income.

Any portion of the donation which does not qualify for the deduction in the year of assessment that it was made is carried forward to the succeeding year of assessment and is deemed to be a donation made in that year. The amount carried forward is also subject to the 10 per cent limitation in the succeeding year.

The COVID-19 pandemic has led to the establishment of the Solidarity fund to provide relief focused on the impact of COVID 19. The Solidarity Fund is an approved Public Benefit Organisation that has also been approved under section 18A of the Income Tax Act. Donations to this fund therefore qualify for deduction in determining a person’s taxable income.

In order to encourage South Africans to make contributions to the Solidarity Fund, it is proposed that the tax-deductible limit for donations, currently 10 per cent of taxable income, be increased to 20 per cent in respect of donations in cash or of property in kind donated and actually paid or transferred to the Solidarity Fund by the end of the year of assessment of the donor to the Solidarity Fund.

The 20 per cent 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 per cent limitation in that year.

With regard to individuals, the proposed amendments are deemed to have come into operation on 1 April 2020 and apply until 28 February 2021.

With regard to companies, the proposed amendments are deemed to have 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 (PAYE) for donations made through the employer to the Solidarity Fund:

paragraph 2(4)(f) of the Fourth Schedule to the Act makes provision for an employer to take account of donations of up to five per cent of remuneration after contributions to retirement funds in the calculation of monthly employees’ tax (PAYE) of the employee in cases where an employer makes a donation on behalf of such employee and pays it to a section 18A-approved organisation. Remaining donations are allowed as a deduction under section 18A, up to a limit of 10 per cent of the employee’s taxable income, upon assessment.

To alleviate the cashflow difficulties of employees where their employers contribute to the Solidarity 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. The limit can be increased either up to a maximum of 33.3 per cent for three months commencing on or between 1 April 2020 and 1 July 2020 or 16.66% during a period of six months commencing on 1 April 2020, depending on an employee’s circumstances.

This will ensure that the employee gets the deduction that is in excess of 5 per cent 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, however, 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 and apply until 30 September 2020.

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

The payment periods for excise duties after the accounting month end vary for the different products, ranging from 30 days to 130 days, to cater for the delay between manufacture and sale of the final product.

Excise duties on alcoholic beverages and tobacco products are paid at source (i.e. when manufactured) and not at the point of sale.

With the outbreak of the COVID-19 pandemic, the sale of alcoholic beverages and tobacco products was first restricted and has since been prohibited during the lockdown period.

Consequently, manufacturers in these industries are now liable for large excise duty payments when no sales of these products have occurred due to a nation-wide lockdown.

As a result, 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:

The carbon tax came into effect on 1 June 2019 and aims to encourage firms and consumers to invest in low carbon, energy efficient alternative fuels, technologies and production practices.

The Carbon Tax Act No. 15 of 2019 makes provision for the filing of tax returns and payments annually as set out in the rules to the Customs and Excise Act No. 91 of 1964. The rules provide for the filing of tax returns and carbon tax payments by 31 July 2020.

Submissions were made to the National Treasury for a deferral of carbon tax payments to provide short term cash flow relief during the COVID-19 pandemic. There were further concerns that due to the lockdown companies will not be able to timeously license with SARS, file their carbon tax returns, make payments and access the carbon offset allowance administered by the Department of Mineral Resources and Energy.

Consequently, a three-month deferral of the first period for submission of accounts and carbon tax payments is proposed.

The proposed amendments to the rules of the Customs and Excise Act No. 91 of 1964 will change the 2019 period for submission of accounts and carbon tax payments from 31 July 2020 to 31 October 2020.

EXTENSION OF THE SCOPE AND APPLICATION OF THE ORIGINAL RELIEF MEASURES FIRST PUBLISHED IN THE BILLS (THE ORIGINAL RELIEF MEASURES WERE DISCUSSED IN OUR ARTICLE DATED 2 APRIL 2020 WHICH WE ATTACH HEREWITH FOR YOUR REFERENCE)

Employment Tax Incentive: increase in the expanded employment tax incentive amount allowable:

The first set of tax measures expanded the ETI amount that may be claimed by eligible employers registered with SARS by 1 March 2020 in respect of qualifying employees, as defined in the current ETIA, by R500 per month.

In the revised Bills government proposes expanding the maximum amount of ETI claimable by eligible employers by R750 per month:

The maximum ETI claimable per month will therefore be increased from R1000 to R1 750 in the first 12 qualifying months and from R500 to R1250 in the second 12 months in respect of qualifying employees.

Furthermore, during the period 1 April 2020 to 31 July 2020, eligible employers can claim a monthly ETI of R750 for qualifying employees 18 to 29 years of age that exhausted the 24 month claim period and for employees 30 to 65 years of age not normally eligible due to their age.

The proposed amendments will apply for a period of four months from 1 April 2020 to 31 July 2020 and are deemed to have come into operation on 1 April 2020 and end on 31 July 2020.

In view of the fact the proposed increase from R500 to R750 (in respect of the amount to be claimed) is made after the April payroll run, it is proposed that the additional R250 not claimed as part of the April payroll run can be claimed during the May payroll run.

Employees Tax: Increase in the proportion of the deferred amount of employee’s tax liability and the gross income limit for qualifying employees:

The first set of tax measures enabled a qualifying employer registered with SARS by 1 March 2020 to defer 20% of the PAYE liability without SARS imposing administrative penalties and interest for the late payment thereof. A qualifying employer included, amongst other criteria, 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 and 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.

In the revised Bills, it is proposed that the proportion of PAYE that can be deferred, without SARS imposing administrative penalties and late payment interest, is increased from 20% to 35%.

In order to reach out to more businesses, the definition of qualifying employer has been amended as follows:

The gross income threshold has been increased from R50 million to R100 million.

In addition, it is proposed that the 10% threshold on passive income be increased to 20% and that passive income should be extended to include income from royalties and annuities. Furthermore, it is proposed that passive rental income derived from the letting of fixed property should exclude rental income derived by a person whose main trading activity is the letting of fixed property.

This proposed amendment is deemed to have come into operation on 1 April 2020 and end on 31 July 2020.

Provisional tax: Increase in the gross income limit for deferral of the payment of provisional tax liability for qualifying provisional taxpayers:

The first set of tax measures provided for qualifying provisional taxpayers to defer a portion of the first and second provisional tax payments for the period of 12 months 1 April 2020 to 31 March 2021. A qualifying provisional taxpayer included, amongst other criteria, a gross income of R50 million or less for the year of assessment ending on or after 1 April 2020 but before 1 April 2021 and 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.

In the revised Bills, a qualifying provisional taxpayer has been amended as follows:

The gross income threshold has been increased from R50 million to R100 million for the years of assessment ending on or after 1 April 2020 but before 1 April 2021.

In addition, it is proposed that the 10% threshold on passive income be increased to 20% and that passive income should be extended to include income from royalties and annuities. Furthermore, it is proposed that passive rental income derived from the letting of fixed property should exclude rental income derived by a person whose main trading activity is the letting of fixed property.

These proposed amendments are deemed to have come into operation on 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.

For more information on the above, please contact our Tax Team.