Tax Measures to Combat the COVID-19 Pandemic
In light of the National State of Disaster and due to the potentially lasting negative impact on the economy, as a result of the national lockdown, government has introduced the following tax interventions to assist with job retention and to assist businesses in financial distress:
EXPANSION OF THE EMPLOYMENT TAX INCENTIVE
The Employment Tax Incentive (ETI) currently allows an employer to claim ETI in respect of employees between the ages of 18 and 29 years and who earn remuneration of less than R6 500.
Before the amendment the maximum monthly ETI claimable per employee was limited to R1 000 in the first year of employment and R500 in the second year of employment. ETI could only be claimed for the first 24 qualifying months of the employee’s employment contract.
The draft Explanatory Notes on COVID-19 Tax measures recently released by National Treasury proposes the following relief from 1 April – 31 July 2020:
- An increase of the maximum amount of ETI claimable during this four month period for employees eligible under the current ETI Act (those between 18 and 29 years) from R1 000 to R1 500 in the first year and from R500 to R1 000 in the second year.
- An additional monthly ETI claim of R500 during this four month period for employees between the ages of:
- 18 to 29 years who are no longer eligible for the ETI as the employer has claimed ETI in respect of those employees for two years; and
- 30 to 65 who are not eligible for the ETI due to their age.
Treasury will accelerate ETI refunds from twice a year to monthly as a means to assist compliant employers from a cash flow perspective. It should be noted that the above ETI relief only applies to employers that were registered with SARS as at 1 March 2020.
DEFERRAL OF THE PAYMENT OF EMPLOYEES’ TAX LIABILITY
Employers are required to submit a return (EMP201) and to make payment of PAYE withheld from employees to SARS within seven days after the end of the month for which the PAYE was deducted. Administrative penalties may be imposed for later payment.
The proposal provides the following relief for tax compliant small to medium sized businesses (annual turnover not exceeding R50 million) for the same four-month period as referred to in the ETI relief:
- a deferral of payment of 20% of the PAYE liability, without SARS imposing administrative penalties and interest for the late payment thereof;
- the deferred PAYE liability must be paid to SARS in equal instalments over the six-month period commencing on 1 August 2020 (first payment must commence on 7 September 2020).
It must be noted that the relief will not be granted where the tax affairs of the employer are not up to date. In particular, this would be the case where the employer has:
- failed to submit any return as required by the Tax Administration Act, for example VAT or Income Tax returns;
- an outstanding tax debt, other than an amount owing to SARS:
- where an instalment payment agreement or compromise agreement is in place;
- where suspension of payment was granted pending the outcome of an objection or appeal; or
- is less than R100.
DEFERRAL OF THE PAYMENT OF PROVISIONAL TAX LIABILITY
Taxpayers are required to estimate their total taxable income for a year of assessment and submit the required provisional tax returns on a bi-annual basis. The first payment, which is 50% of the total estimated liability, must be made within six month after the commencement of the year of assessment and the second payment, which is the total estimated liability reduced by the first payment, must be made by no later than the last day of that year of assessment. Non-compliance can result in SARS penalties and interest.
The proposal provides the following relief for tax compliant small to medium sized companies (annual turnover not exceeding R50 million) for a twelve-month period beginning 1 April 2020 and ending 31 March 2020:
- deferral of a portion of the payment of the first and second provisional tax liability to SARS, without the imposition of administrative penalties and interest for late payment of the deferred amount;
- The first provisional payment due from 1 April 2020 to 30 September 2020 will be based on 15% of the estimated total tax liability, while the second provisional tax payment from 1 April 2020 to 31 March 2021 will be based on 65% of the estimated total tax liability;
- Provisional taxpayers with deferred payments will be required to pay the full tax liability when making the third provisional tax payment in order to avoid interest charges (six months after the year end).
The eligibility criteria for individuals carrying on a business have not yet been finalised.
Non-compliant taxpayers will not obtain relief as detailed under the previous heading.
It should be noted that interest and penalties will apply in instances of underestimation of the provisional tax liability.
Please contact your PKF representative should you require any assistance with the application of the above tax relief measures.
Deon van Zyl
PKF Port Elizabeth