COVID-19 has brought about unprecedented uncertainty in South Africa and in this article, we will discuss some of the material relief measures that have been instituted by the South African Government (the “Government”) to provide essential assistance to employers and employees of businesses impacted by COVID-19.
Before we consider the nature and scope of these measures undertaken by the Government, it is important that employers and employees read the Regulations in terms of the Disaster Management Act, 2002, which were published by the Government that provides the legislative framework upon which these measures are based (“Regulations”). Pursuant to the Regulations, it is common cause that the Regulations will apply during the “lockdown” period.
TAX RELIEF MEASURES
On 29 March 2020, the Minister of Finance published the Explanatory Notes on COVID-19 Tax Measures (“Explanatory Tax Note”). Some of the key material measures from the Explanatory Tax Note are as follows:
Employment Tax Incentive (“ETI”)
The ETI programme makes provision for the employer to claim the ETIs in respect of a qualifying employee:
- who is between the ages of 18 and 29; and
- has a monthly remuneration of less than R6 500.
Government proposes expanding the ETI programme for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020, wherein such will be administered by the South African Revenue Service (“SARS”) and will therefore include:
- increasing the maximum amount of ETI claimable during this four-month period for employees eligible from R1 000 to R1 500 in the first qualifying twelve months and from R500 to R1 000 in the second twelve qualifying months; and
allowing a monthly ETI claim in the amount of R500 during this four-month period for employees from the ages of: 18 to 29 who are no longer eligible for the ETI as the employer has already claimed. ETI in respect of those employees for 24 months; and o 30 to 65 who are not eligible for the ETI due to their age;
- Accelerating the payment of employment tax incentive reimbursements by SARS from twice a year to monthly.
NOTE: This expansion will, however, only apply to employers that were registered with SARS as at 1 March 2020.
Deferral of employees’ tax liability
Government proposes the following tax measures for tax compliant small to medium-sized businesses with an annual turnover not exceeding R50 million, for a limited period of four months, beginning 1
April 2020 and ending on 31 July 2020, which includes:
- deferral of payment of 20 per cent of the PAYE liability, without SARS imposing administrative penalties and interest for the late payment thereof; and
- the deferred PAYE liability must be paid to SARS in equal instalments over the six month period commencing on 1 August 2020, i.e. the first payment must be made on 7 September 2020.
The above measures shall not apply to those employers or representatives of employers that have failed to submit any return in terms of the Tax Administration Act, 2001 (“TAA”) or has any outstanding tax debt as defined under the TAA. However, interest and penalties will apply if the employer has understated the PAYE liability for any of the four months. Moreover, these measures shall not apply in respect of any taxes owing in terms of an instalment payment agreement, a compromise of tax debt, suspension of payment and where tax debt is below R100.
NOTE: No delay may be undertaken by the taxpayer in respect of contributions relating to the
Unemployment Insurance Fund (“UIF”) or the Skills Development Fund (“SDL”)
Deferral of provisional tax liability for compliant small to medium-sized businesses. Government proposes the following tax measures for tax compliant small to medium-sized businesses, with an annual turnover not exceeding R50 million, for a period of twelve months, beginning 1 April 2020 and ending on 31 March 2021, which includes:
- deferral of a portion of the payment of the first and second provisional tax liability to SARS, without SARS imposing administrative penalties and interest for the late payment of the deferred amount;
- the first provisional tax payment due between 1 April 2020 and 30 September 2020 will be based on 15 percent of the estimated total tax liability, while the second provisional tax payment due between 1 April 2020 and 31 March 2021 will be based on 65 percent of the estimated total tax liability; and
- 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.
The above measure shall not apply to those employers or representatives of employers that have failed to submit any return in terms of TAA or has any outstanding tax debt as defined under the TAA. Moreover, these measures shall not apply in respect of any taxes owing in terms of an instalment payment agreement, a compromise of tax debt, suspension of payment and where the tax debt is below R100.
SDL and UIF contributions
The reductions in the SDL and UIF contributions have not been implemented by the National Treasury, therefore, it is advised that clients should not adjust their employer or employee contributions to UIF or SDL.
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 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 199.
A full rebate of customs duty under rebate item 412.11 of Schedule 4 to the Customs and Excise Act 91 of 1964 is available where ITAC has approved the rebate for the goods concerned.The above relief grants VAT vendors with the applicable VAT exemption and a full customs rebate in the circumstances. This rebate will benefit those VAT Vendors who produce and/or sell “essential goods” who import products as included within the list of “essential goods”.It must be noted that the above relief is applicable during the lockdown period as defined in the Regulations.
The list of “essential goods” shall include:
a. Any food product, including non -alcoholic beverages;
b. Animal food; and
c. Chemicals, packaging and ancillary products used in the production of any food Product.
2. Cleaning and Hygiene Products:
a. Toilet Paper, sanitary pads, sanitary tampons, condoms;
b. Hand sanitiser, disinfectants, soap, alcohol for industrial use, household cleaning products, and personal protective equipment; and
c. Chemicals, packaging and ancillary products used in the production of any of the above.
a. Medical and Hospital Supplies, equipment and personal protective equipment; and
b. Chemicals, packaging and ancillary products used in the production of any of the above.
4. Fuel, including coal and gas:
5. Basic goods, including airtime and electricity.
COMPANIES AND INTELLECTUAL PROPERTIES COMMISSION
Companies and Intellectual Properties Commission (“CIPC”)
CIPC has recently released a statement in respect of the services that it is offering during the lockdown period. It has indicated that all services, other than those that can be automated via its online portal, will be closed during lockdown.
For the purposes of filing Annual Returns, it should be noted that the filing period, which falls within 25 March 2020 to 15 April 2020 will be extended until 30 April 2020. If the filing period falls outside of such period, the normal prescribed filing period will be applicable. This extension of the filing period has the effect of deferring penalties, compliance checklist and preparation of annual financial statements accordingly.
FUNDING OPTIONS UNDER COVID-19
Having regard to the financial impact on business in respect of COVID-19, the following funding options are available for employers and employees that find themselves in financial distress as a consequence of COVID-19.The following funding options, amongst others, are available to employers and employees to assist with the financial distress as a consequence of COVID-19:
- the Unemployment Insurance Fund (“UIF”);
- the special dispensation under the Temporary Employee Relief Scheme (“TERS”).
The TERS dispensation provides for the following:
- the employer, who is registered with the UIF, has shut down its operations and employees cannot work from home;
- the employer experience financial distress when paying salaries to employees due to the shutdown of its operations. It can be proven before the employees’ salaries are paid;
o the employee is not in self-quarantine; o the employer has not laid off employees during the shut-down period.
• the SMME Relief Finance Scheme. See link hereto: https://smmesa.gov.za/; and
• the Solidarity Fund to support business in financial distress. See link hereto: https://www.solidarityfund.co.za/.
Where the business is an essential service and not in lockdown
In circumstances where a business is an essential service and not in lockdown, no claim under the UIF arises unless the pay of the employee has been reduced. Currently, there will be no TERS claim according to the interpretation of the Regulations as the business operations are not shut down.
Where the business is a non-essential service and already in lockdown<
In circumstances where a business is a non-essential service and already in lockdown, the following options should be noted in the circumstances:
1. Where the employees are required and equipped to work from home:
i. then, employees do not claim under the UIF unless reduced pay has been implemented by the employer;
ii. Currently, there will be no TERS claim according to the interpretation of the Regulations as the business operations are not shut down.
Where the employees are unable to work from home:
i. employees may take their annual leave, however, if paid in full, no UIF claim arises. If the employee received reduced pay, then a possible UIF claim may arise;
ii. employees may take sick leave, however, such must be actually sick leave which will be paid by the employer and no UIF claim arises. If the employee received reduced pay, then a possible UIF claim may arise;
iii. employees may take family responsibility leave only if there is a sickly person in the family to take care of which will be paid by the employer and no UIF claim arises. If the employee received reduced pay, then a possible UIF claim may arise;
iv. employees take paid leave, then if full or reduced, possible TERS claim arises if the applicable requirements are met;
v. employees take unpaid leave, then possible UIF claim or TERS claim arises, however, this is subject to change and clarification;
vi. employer temporarily suspends and/or layoffs employees. In this case, a possible claim for UIF may arise or a claim under the National Disaster Benefit or under TERS; and
vii. employees are on paid leave, the employer in these circumstances may apply for TERS funding if the employer is in financial distress and cannot pay salaries.
Where the business is an essential and/or non-essential service but the employee is in self-quarantine before lockdown
In circumstances where a business is an essential and non-essential service, the following should be noted:
1. Where the employee chooses to undergo self-quarantine:
i. employees may take possible special leave under the illness benefit for UIF.
*DISCLAIMER: Exceed takes no responsibility for the accuracy and/or correctness of the information provided above, and should you wish to enquire about the above, please get into contact with us for purposes of us providing you with bespoke advice in accordance with your particular business needs and/or requirements.