Following the announcement by Pres. Ramaphosa on 23 March 2020 of the national lockdown to be put in place and which is still observed by South Africa, National Treasury has released a draft explanatory memorandum on Sunday 29 March to further clarify the economic relief measures announced by Pres. Ramaphosa. These measures are intended to provide tax relief to qualifying businesses in the short-term period.
The proposals involve three forms of relief for business, being the increasing of employment tax incentive claims available and the deferment of provisional tax and PAYE payments due.
On Wednesday evening, 1 April 2020, National Treasury published a draft bill to formalise the above proposed and to initiate the legislative process whereby these will ultimately become law. The draft legislation clarifies a number of matters that were the subject of uncertainty following the President’s announcement, including:
- the exact date from which relief will be provided;
- whether relief will be provided from interest too on deferred payments; and
- whether only companies qualify for the relief as opposed to natural persons or trusts also engaging in business activities.
Employment Tax Incentive
The employment tax incentive regime (“ETI”) currently in place provides for employers to claim a rebate against their monthly PAYE payments required to be made to SARS. Employees between the ages of 19 and 29 and earning not more than R6,500 per month currently qualify their employer for a R1,000 rebate per month for the first 12 months of that individual’s employ, where after the rebate is reduced to R500 for the 12-month period thereafter.
In terms of the relief mechanisms introduced (which will be for a four-month period only):
- Employers already registered under the ETI regime with SARS will qualify for a R500 monthly claim on all employees who are between the ages of 30 and 65 (provided they too do not earn more than R6,500 per month).
- In addition, employees for which deductions have already been claimed and their incentive has been exhausted (since it has been claimed for 24 months), will also qualify for a R500 per month rebate.
- Finally, rebates already permissible and claimed will be increased by R500 per month: employees who are still in the first year of employ, will qualify their employers for an allowance of R1,500 per month and those in the second twelve months of employ will have their employers entitled to an increased ETI claim of R1,000 per month.
The draft legislation clarifies that taxpayers are only eligible for the relief if they are both fully tax compliant in relation to all other matters and have gross income (as defined in the Income Tax Act) of not exceeding R50 million annually. The proposed relief moreover only applies to companies with a yearend between 1 October 2020 and 31 March 2021.
In terms of the proposed relief, qualifying taxpayers required to submit a first provisional tax estimate during this period will be required to return only 15% of total estimated taxable income for the tax year as a first estimate, whereas second provisional tax estimates to be submitted are required only to comprise 65% of estimated total annual taxable income.
Deferred provisional tax payments (i.e. the 20% deferred portion) is to be paid together with ordinary third provisional tax payments, being 6 months after yearend, or 30 September 2021 if the taxpayer has a February yearend. Payments made by that date will not be subject to interest.
As with provisional tax, the relief provided here is subject thereto that the employer-taxpayer is fully tax compliant. The relief will apply for the four-month period running from 1 April until 31 July. Only in relation to these PAYE periods, will relief be provided. In other words, the 20% deferment effectively applies for payments required to be made on 7 May, June, July and August of 2020 in relation to PAYE deducted in the months of April until July. PAYE obligations due by 7th April 2020 for the month of March are not included in this relief and a 100% PAYE liability should still be observed for that month.
Late payment for 20% of the deferred amounts from April until July will not carry the standard 10% late payment penalty that would ordinarily have arisen, nor will interest be levied on amounts deferred. These amounts are also required to be repaid in 6 equal monthly instalments commencing 7 September 2020.
We live in uncertain times and the tax environment has not escaped the dramatic nature of unfolding events that we have witnessed over the past number of weeks. If you have any queries with regards your tax obligations or the relief measures introduced by Treasury, please do not hesitate to contact us.