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Covid-19 Tax and Compliance Alert

Covid-19 Tax and Compliance Alert

Mark Hewitt

In this article we analyse the various relief measures made public by the South African Government (“the government”) to date and aim to communicate how South African employers can access these funds and relief measures.

In case you missed it, read HERE about what the Lockdown entails from a business risk perspective, what must be done to ensure your business and its employees can continue to operate and who qualifies to operate during the Lockdown period.

For the sake of clarity, the Lockdown period is from midnight 26 March 2020 until midnight 16 April 2020.
 
SARS relief measures

On Monday 23 March 2020, the president announced various relief measures in order to assist employers that may experience significant distress resultant of COVID-19. Late afternoon on 29 March 2020, the Minister of Finance published the Explanatory Notes on COVID-19 Tax Measures, which communicated the following relief measures to be implemented on 1 April 2020:
 
The complete Explanatory Notes can be found HERE.

1. Employee Tax Incentive (“ETI”) programme (1 April 2020 – 31 July 2020)

A tax subsidy will be provided of R 500 per month for the next four months for private sector qualifying employees (employees who are between the ages of 18 and 29 and earn below R 6,500 per month). The tax subsidy will work within the framework of the current ETI scheme, administered by The South African Revenue Service (“the SARS”), and is detailed below:
 
  • Increasing the ETI refund per qualifying employee from R 1 000 to R 1 500 in the first 12 month qualifying period and from R 500 to R 1 000 in the second qualifying 12 month period;
  • For the following four months, an ETI claim of R 500 per employee can be submitted for employees from the ages of 18 and 29, who are past the 24 month period as well as employees from the ages of 30 and 65. Note that in month instances these employees must still earn below R 6 500 per month; and
  • The ETI payments will be accelerated to be paid out on a monthly basis instead of a bi-annual basis.
Note: The above ETI relief measures will only apply to employers that were registered with SARS as at 1 March 2020. The compliance measures per section 8 and section 10(4) of the ETI Act will continue to apply.

2. Deferral of the payment of employees’ tax liability for Small and Medium Business (1 April 2020 – 31 July 2020)

Employers that have an annual turnover of less than R50 million will be allowed to delay 20% of the pay-as-you-earn (“PAYE”) liabilities beginning 1 April 2020 and ending on 31 July 2020.

The deferred PAYE liability must be paid to SARS in equal instalments over a six month period commencing 1 August 2020 (i.e. first payment to be made on 7 September 2020). No penalties or interest will be levied by SARS in this regard.

It is important to note that the EMP201 return must still be completed in full and must not be understated in any way. The EMP201 must reflect the full liability, of which 80% is then paid by the 7th of the next month.
This relief will only be available to employers that:
 
  • Have no outstanding tax debt in terms of the Income Tax Act No.58 of 1962 (“the Act”) (this refers to Income Tax, any of the Withholding Taxes, Donations Tax and Payroll taxes, but excludes VAT and Security Transfer Tax) excluding debt that is either below R 100, has been suspended, a repayment plan has been agreed to or where are compromise agreement has been implemented.
Alert: No delay is allowed on the payment of contributions relating to the Unemployment Insurance Fund (“UIF”) or the Skills Development Fund (“SDL”).

3. Deferral of the payment of provisional tax liability for Small and Medium Business (1 April 2020 – 31 March 2021)

Employers that have an annual turnover of less than R50 million and are tax compliant will receive the following assistance beginning 1 April 2020 and ending 31 March 2021:
 
  • The first provisional tax payment, due from 1 April 2020 to 30 September 2020, will be based on 15% of the estimated total tax liability (as opposed to the usual 50%), while the second provisional tax payment, due from 1 April 2020 to 31 March 2021, will be based on 65% of the estimated total tax liability (as opposed to 100% less the first provisional tax payment);
  • The deferred amount of the total estimated tax liability will need to be paid with the third provisional tax payment to avoid penalties and interest being levied by the SARS.
The provisional tax relief measures for individuals carrying on a trade have yet to be finalised, but it is suggested that the above will also apply to individuals provided their turnover is less than R 5 million and no more than 10% of turnover is derived from passive income (interest, dividends and rental from fixed property).
This relief will only be available to employers that:
 
  • Have no outstanding tax debt in terms of the Income Tax Act No.58 of 1962 (“the Act”) (this refers to Income Tax, any of the Withholding Taxes, Donations Tax and Payroll taxes, but excludes VAT and Security Transfer) excluding debt below R 100, debt that has been suspended, debt for which a repayment plan has been agreed to or debt where are compromise agreement has been implemented.
4. Reduction in UIF and SDL contributions

It is noted that the temporary reduction in the employer and employee contributions to the UIF and SDL employer contributions, as announced by the president, has not been implemented by National Treasury.
 
Accordingly, we advise our clients not to adjust their employer or employee contributions to UIF or SDL in any way.

Note: Although the above information was published in draft format, National Treasury assured employers that these measures issued are effective 1 April 2020, but can only be given legal effect once Parliament re-convenes later this year. Legal effect will be given retrospectively.
 
ALERT: Export Clients

SARS has published Binding General Ruling 52 (“BGR 52”), which provides for an extension of the time period required in which exporters must export goods from South Africa to qualify for VAT at the zero rate.

SARS has extended the period for direct and indirect exports, which is prescribed under Regulation 3(a) of the Export Regulations (currently 90 days from date of invoice), by an additional three month (i.e. 90 days) as SARS deems the COVID-19 outbreak as “circumstances beyond the control” of the taxpayer.

The period within which a refund claim must be submitted to the VRA under Part One of the Export Regulations, is also extended by an additional three months. Accordingly, the total period for a VAT refund to be claimed under the VRA is now six months from the date of export.
 
The full BGR 52 can be found HERE.
 
ALERT: VAT exemption for essential goods on importation

Due to the measures put in place under the Disaster Management Act 57 of 2002, “essential goods” as defined in Regulation R.398 in Government Gazette No 43148 of 25 March 2020 will be subject to a (customs) VAT exemption on importation during the COVID-19 pandemic, under Item 412.11/00.00/01.00 of Schedule 1 to the Value Added Tax Act 89 of 1991. A full rebate of customs duty under rebate item 412.11 of Schedule No. 4 to the Customs and Excise Act 91 of 1964 is available where ITAC has approved the rebate for the goods concerned.
 
“Essential Goods” are:
 
  • Food
    • Any food product, including non-alcoholic beverages;
    • (ii) animal food; and
    • (iii) chemicals, packaging and ancillary products used in the production of any food product.
  • Cleaning and hygiene products
    • Toilet Paper, sanitary pads, sanitary tampons, condoms;
    • hand sanitiser, disinfectants, soap, alcohol for industrial use, household cleaning products, and personal protective equipment; and
    • Chemicals, packaging and ancillary products used in the production of any of the above.
  • Medical
    • Medical and hospital Supplies, equipment and personal protective equipment; and
    • Chemicals, packaging and ancillary products used in the production of any of the above.  
  • Fuel, including coal and gas
  • Basic goods, including airtime and electricity
Item 412.11/00.00/01.00 of Schedule 1 to the Value Added Tax Act 89 of 1991 and rebate item 412.11 of Schedule 4 to the Customs and Excise Act 91 of 1964 states the follow:

“Goods imported –

(a) for the relief of distress of persons in cases of famine or other national disaster;
(b) under any technical assistance agreement; or
(c) in terms of an obligation under any multilateral international agreement to which the Republic is a party: Provided that –

(i) the importation of any goods under this rebate item shall be subject to a certificate issued by the International Trade Administration Commission and to such other conditions as may be agreed upon by the Governments of the Republic, Botswana, Lesotho, Swaziland and Namibia; and
(ii) goods imported under this rebate item shall not be sold or disposed of to any party who is not entitled to any privileges under the rebate item, or be removed to the area of Botswana, Lesotho, Swaziland or Namibia without the permission of the International Trade Administration Commission”
 
Companies and Intellectual Properties Commission (“CIPC”)
 
CIPC has released a statement communicating that all services, other that fully automated e-services via its website, will be closed resultant of the Lockdown. CIPC will re-open and continue all services from 16 April 2020. During the Lockdown period all mailboxes and uploading capabilities will be closed.
What are the practical implications?
 
  • Annual Returns which fall due within the period from 25 March 2020 until 15 April 2020 will be extended until 30 April 2020;
  • This extension has the effect of deferring penalties, compliance checklists and preparation of annual financial statements;
  • All deregistrations as a result of non-compliance with Annual Returns or by request by the directors of a company will be delayed until further notice;
  • All name reservations that fall within the period of 25 March 2020 until 15 April 2020, will automatically be extended until 30 April 2020; and
  • A general extension is provided for purposes of all business rescue proceedings which commenced, but did not complete the procedure per section 129 of the Companies Act until 30 April 2020. Furthermore, proceedings that have not yet commenced in terms of section 129 of the Companies Act, dies non (a day without business proceedings) will apply until 16 April 2020.
Note: If you require a license from bizportal / CIPC to operate during the lockdown, our Company Secretarial Services Department could assist you. Please be in touch with your closest Moore office for this extended temporary service line.
 
What’s Next?

Look out for our next COVID-19 Government Relief Alert - as our team of experts analyses and communicated key developments from a cash flow relief perspective.

Author: Mark Hewitt from Moore Cape Town’s specialist Tax and Advisory Department