The following is a summary of versions issued on 19 May 2020 of the Draft Disaster Management Tax Relief Bill and draft explanatory memorandum on this bill, Draft Disaster Management Tax Relief Administration Bill, National Treasury Media Statement, and draft Notice on Expanding Access to Living Annuity Funds. We also include discussion of the draft rule amendments of the Customs and Excise Act 1964 issued on 1 May 2020 and notable Covid-19 tax relief information from the SARS website.
Employment tax incentive relief
Employers will be able to claim additional employment tax incentive relief (ETI) for remuneration payable from 1 April 2020 to 31 July 2020 as follows:
- an additional ZAR750 per qualifying employee - i.e. an increase from ZAR1000 to ZAR1750 in the first qualifying 12 months, and from ZAR500 to ZAR1250 in the second qualifying 12 months;
- ZAR750 for each qualifying employee (18 to 29 years) where the employer had previously claimed ETI for the full 24 months;
- ZAR750 for each employee between 30 to 65 years who does not qualify for the ETI due to age.
The requirement for an employer to gross up the monthly remuneration for qualifying employees who work less than 160 hours a month is removed from 1 May 2020 until 31 July 2020.
ETI reimbursements will be processed monthly after submission of the EMP 201 returns, as opposed to twice a year.
The above relief will only be available to tax-compliant employers who are registered with SARS on 1 March 2020.
As payroll software may not have been updated for the additional ZAR 250 for the April payroll, patch updates will allow for the additional ETI of R250 for April in the May payroll.
Deferral of provisional tax payments
"Qualifying taxpayers" that are companies, trusts, partnerships or individuals which conduct a trade and have gross income of ZAR100 million or less will be able to defer their first and second provisional tax liabilities as follows:
- 15% of the estimated tax liability for the year of assessment is to be paid as the first provisional tax payment (instead of 50%);
- 50% is to be paid as the second provisional tax payment, meaning 65% of estimated tax liability must have been paid by the last day of 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. The due date for the third provisional top-up payment is 30 September for taxpayers with February year-ends, and six months after the end of the financial year for all other year-ends.
The ZAR100 million gross income limit will be determined in the year of assessment ending on or after 1 April 2020 but before 1 April 2021. In addition, these qualifying taxpayers should also be tax compliant and not earn more than 20% of income from interest, dividends, foreign dividend, fixed property rental, any remuneration, royalties and annuities.
The above will apply to:
- first provisional tax periods ending on or after 1 April 2020 but before 1 October 2020; and
- second provisional tax periods ending on or after 1 April 2020 but before 1 April 2021.
Similar relief has been granted to "qualifying micro businesses", which are tax compliant registered micro businesses.
Deferral of employees' tax
Qualifying taxpayers that are tax compliant registered employers or representative employers will be able to defer payment of 35% of their employees' tax (PAYE) liabilities withheld in the period 1 April 2020 to 31 July 2020, without penalties and interest.
The 35% deferral will be payable in equal instalments over six months from 1 August 2020, i.e. the first instalment must be paid by 7 September 2020 and last by 5 February 2021. Late payments of the instalment amounts will result in 10% late payment penalties and interest.
The deferral of the 35% will be available on the PAYE statement of account, not on the EMP201. Please refer to the SARS Q&A for employers for further information.
Skills development levy payment holiday
A four-month payment holiday for payment of the skills development levy for employers from 1 May 2020 to 31 August 2020. The SDL portion of EMP 201 forms for May to August 2020 will be blanked out.
Donations to the Solidarity Fund taken into account in calculating PAYE
Donations to Solidarity Fund made in the employers' name on behalf of employees can be taken into account up to 33.3% of the employees' monthly remuneration between 1 April and 30 June 2020, up to 16.66% of the employees' monthly remuneration between 1 April and 30 September 2020.
Deductibility of donations to Covid-19 disaster relief organisations
Any Covid-19 disaster relief organisation is deemed to be a public benefit organisation from 1 April 2020 to 31 July 2020 and donations in cash or property in kind to such organisation will be deductible up to a maximum of 10% of taxable income. Weekly allowances from these organisations will be exempt from employees' tax but would be income in the hands of the employees subject to income tax on assessment.
Taxpayers who donate to the Solidarity Fund between 1 April 2020 and 31 July 2020 will be able to claim an additional 10% deduction against their taxable income.
VAT refunds fast-tracked
Smaller vendors registered as Category A or B vendors that usually submit returns once every two months will be allowed to file and receive refunds monthly commencing during the April to May 2020 tax period and ending in the June to July 2020. This will enable these vendors to receive VAT refunds sooner.
Excise and carbon tax payment deferrals
Excise taxes on alcoholic beverages and tobacco products which are due in May 2020 and June 2020 will be deferred by 90 days.
There is a three-month delay in the filing and payment of the first carbon tax. The first tax returns and payments for carbon tax would have been due by 31 July 2020, will now only due by 31 October 2020.
Taxpayers that are compliant may also apply to enter into instalment payment arrangements for outstanding customs and excise if they face immediate liquidity constraints which will improve in the near future, they anticipate future income and other receipts to pay the amounts due, the prospect of immediate recovery is harsh and uneconomical, and the agreement is unlikely to prejudice tax collection.
Access to living annuity funds
For a limited period of four months from 1 June 2020 to 30 September 2020, individuals who receive funds from a living annuity will be able to increase from 17.5% to a maximum of 20% or decrease from 2.5% to a minimum of 0.5% the proportion they receive as annuity income from living annuity assets.
Further, the minimum value of annuity or retirement interest which an individual can withdraw has been replaced to a single threshold of ZAR125 000 as the de minimis amount. This amendment will take effect and continue to apply from 1 March 2020.
Extension of time periods for direct and indirect exports
SARS issued Binding General Ruling 52 (BGR 52) on 26 March 2020 to extend the time periods for direct and indirect exports where the prescribed timelines have not yet been exceeded.
Generally, direct exports are exports where the vendor bears the costs of transport and delivers the goods to the export country. The vendor must obtain the required documentary proof and export the goods within 90 days of the earlier of the date of invoice or any payment. BGR 52 extends the 90-day period by an additional three months.
Generally, indirect exports are exports where (1) the vendor levies VAT at 15% and the foreign purchaser claims a VAT refund from the VAT Refund Administrator; or (2) where the vendor zero-rates the export where the export is by ship or air, or in certain instances, by road or rail. For (1), BGR 52 provides that the goods must be exported within 90 days of date of invoice, and the foreign purchaser must claim the VAT refund within 90 days of date of export. For (2), the goods must be exported by the vendor within 90 days of the earlier of date of invoice or any payment. BGR 52 extends the 90-day period for both (1) and (2) by an additional three months.
BGR 52 refers to the Covid-19 pandemic as circumstances beyond the control of the vendor, which includes natural or human-made disaster.
Customs duty and VAT concessions on importation of "essential goods"
SARS issued a media statement on 27 March 2020 (updated on 29 March 2020) on certain customs duty and VAT concessions on the importation of "essential goods" as defined in the Regulations issued under the Disaster Management Act, 2002 (the Regulations). This media statement was subsequently replaced with two media statements that were issued on 3 April 2020 following the release of two documents, namely a Mapping of Essential Goods with reference to Annexure B to the Regulations...issued under the Disaster Management Act, 2002 (Mapping List), issued by SARS, and a Certificate issued in terms of Schedule 1(8) of the Value-Added Tax Act…Rebate Item 412.11/00.00/01/00 (SARS Mapping List) (ITAC VAT Certificate), issued by the International Trade Administration Commission (ITAC). Both these documents are being amended from time to time (the latest versions being issued on 6 May 2020 and 8 May 2020 respectively). It is important that the current SARS Mapping List and ITAC Certificate be consulted before any exemption from VAT on importation is claimed. SARS notes that the concession will remain in place until 31 May 2020 (SARS Communique to All Stakeholders dated 8 May 2020.
Importers will be able to claim a full rebate of customs duty on the importation of so-called "critical supplies" as listed by ITAC on their website, while a general VAT exemption on the importation of "essential goods" as listed in Annexure B to the Regulations has been provided for (subject to certain exclusions). The SARS Mapping List provides, according to SARS, an illustrative mapping of essential goods that may be imported free of VAT and the relevant tariff headings.
The critical supplies listed by ITAC on their website may be entered under full rebate under Item 412.11 of Schedule 4 of the Customs and Excise Act. However, in order to claim customs duty relief in respect of the critical supplies, the importer will need to obtain an import certificate (permit) from ITAC. We understand that ITAC will expedite the issue of these certificates and that the information required to apply for such certificates is available on the ITAC website.
By contrast, ITAC has in relation to VAT issued the ITAC VAT Certificate that covers the importation of all "essential goods" as listed in Part A of Annexure B to the Regulations. Importantly, the ITAC VAT Certificate excludes certain goods, namely
- goods that are subject to a trade remedies duty (anti-dumping, countervailing or safeguard duty) as set forth in Schedule No. 2 to the Customs and Excise Act;
- goods that would be subject to a trade remedies duty, but are entering South Africa duty free because of a preferential trade agreement or other agreement, such as a customs union;
- goods that are currently subject to an application made under the International Trade Administration Act, Act No. 71 of 2002 (the ITAC Act), which application was submitted to ITAC’s Tariff Investigations units for tariff assistance in terms of Schedule No. 1 to the Customs and Excise Act; and
- goods that are currently the subject of an investigation by ITAC’s Trade Remedies units.
A full list of these excluded goods is provided in the ITAC VAT Certificate. Importantly, as these excluded goods are debarred under the ITAC VAT Certificate, no VAT exemption may be claimed on importation in respect of these excluded goods.
SARS notes in its media statement that the "essential goods" that are not dutiable fall under the ITAC VAT Certificate and no individual application need be made to SARS or ITAC for import permits - in contrast to the listed critical supplies that require specific ITAC import permits.
SARS also states that the relevant rebate item may only be claimed for direct importations and no bonded or warehouse clearances will be permitted under rebate Item 412.11. (Media Statement of 9 April 2020, available on the SARS website).
The SARS Mapping List specifies a number of goods that qualify for the VAT exemption is said to be merely for "illustrative purposes". We take this to mean that other essential goods as listed in the Regulations that are not mentioned in the SARS Mapping List will also qualify for the VAT exemption. But it is not clear whether importers can themselves decide whether their goods are "essential goods", and therefore claim the VAT exemption under Item 412.11 of Schedule 1 to the VAT Act, or whether SARS should be approached to confirm whether the relevant goods are in fact "essential goods".
It is important to bear in mind that the Covid-19 VAT concessions referred to above only applies to VAT incurred on importation of the "essential goods" listed in Part A of Annexure B to the Regulations, and not on the subsequent supply of these goods by VAT vendors.
Extension of days
The days between 26 March 2020 and 30 April 2020 will not be taken into account for dispute resolution procedures, ruling applications, notices to attend interviews, inquiries and field audits during this period, warrants for search and seizure, prescriptions of assessments, applications for remittance of penalties, revision of incorrect penalty assessment by SARS, general requests to extend a deadline, appointment of public officer deadlines, and revoking third party access deadlines in the Tax Administration Act (TAA).
The effective date of 1 July 2020 for declarations to reduce royalty and dividends withholding tax rates to expire after 5 years will be deferred to 1 October 2020.
Generally, these days will also not be taken into account for the furnishing of documents or proof (other than those relating to bill of entry), submission of reports, notices or notifications (other than those for cargo reports), submission and processing of applications for registration or licensing, general refunds of duty, and substitution of a bill of entry in the Customs and Excise Act.
These days will also be disregarded for internal administrative appeal procedures, alternative dispute resolution procedures or dispute settlement and when determining prescription dates for value determinations, tariff determinations or origin determinations to SARS or in an appeal to the High Court.
However, these days will not be disregarded for the submission of (1) a bill of entry (including SAD form); (2) submission of an account or return for excise duties, fuel levy, environmental levies, health promotion levy and air passenger tax; and supporting documents and proof required for (1) and (2).
These days will also not generally be disregarded for any payment of duties due and payable in the Customs and Excise Act.
On application, the Commissioner has a general discretion to condone any non-compliance with a time period with retrospective effect if it can be shown that the non-compliance was due to the lock-down, However, if the Customs and Excise Act requires any permit or authorisation to be obtained before expiry of a time period, then such general discretion does not apply. Further, the general discretion would also not apply in the specific exclusions listed above where the days would not be disregarded (i.e. bill of entry, submission of account or return, supporting documents and payments of any duties due and payable).
Extension of public comments on specific 2020 tax proposals
The public comment on the following 2020 tax proposal "Tax Treatment of Excessive Debt Financing, Interest Deductions and Other Financial Payments" has been extended from 29 May 2020 to 30 September 2020 due to the subsequent postponement of the implementation of effective date of this proposal from 1 January 2021 to 1 January 2022.
Further requests for deferral of tax obligations
It is vital that taxpayers continue to meet their other tax compliance obligations where no concession has been granted.
Notably, larger businesses (with gross income of more than R100 million) that are incapable of making payment due to the COVID-19 disaster, may apply to defer tax payments without incurring penalties by emailing us on COVID19IPAaboveR100m@sars.gov.za.
Similarly, businesses with gross income of less than R100 million can apply for an additional deferral of payments without incurring penalties by emailing us on COVID19IPAbelowR100m@sars.gov.za.
For more information on the requirements and documents to include in the application, see How do I query my debt.
For the latest on the Covid-19 impact, please see here on the SARS website.