South AfricaTax and financial measures associated with COVID-19
- The introduction of a tax subsidy to employers of up to R500 per month for the next four months for those private sector employees earning below R6,500 under the Employment Tax Incentive. This will help over 4 million workers;
- The South African Revenue Service to accelerate the payment of employment tax incentive reimbursements from twice a year to monthly to get cash into the hands of compliant employers as soon as possible;
- Tax compliant businesses with a turnover of R50 million or less will be allowed to delay 20% of their employees’ tax liabilities over the next four months and a portion of their provisional corporate income tax payments without penalties or interest over the next six months. This intervention is expected to assist 75 000 small and medium-term enterprises.
- VAT exemption for essential goods on importation (29 March - Updated to reflect scope of customs duty rebate)
- 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 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.
Social security measures
- The Department of Employment and Labour has issued guidelines on how to contain the spread of the corona virus in our Labour centres. These guidelines stipulate that contact with the clients documents should be avoided. In order to comply with this directive, the Unemployment insurance Fund will be relaxing adherence to its processes by accepting applications through other means than those stipulated in the Standard Operating Guide. This will enable an estimated 650 000 farm workers to claim UIF benefits to help them survive the winter months.
- Increase Child Support Grant by R500 for 6 Months
- Increase other grants by R250 for 6 months
- COVID-19 Social relief of Distress Grant of R350 for 6 months
- Distribution of food parcels to vulnerable homes
- New model for food assistance through vouchers and cash transfers.
- Additional funding of R 20 Billion will be made available to municipalities for the provision of emergency water supply, increased sanitation of public transport and facilities and providing food and shelter for the homeless.
Employee and employer supportive measures
- Instances where companies decide to close for a short period as a pre – cautionary measure, the short-term UIF benefits will kick in as stipulated in Section 12(1) b of the Unemployment Insurance Act, as amended.
- Section 12 (1B) covers a contributor employed in any sector who loses his or her income due to reduces working time , despite still being employed , is entitled to benefits.
- Where an contributor has to be self quarantined for 14 days and or in special circumstances more than 14 days , the contributor will be covered under Part C of the Unemployment Insurance Act, as amended (Illness benefits)
- In order to assist with alleviating cash flow burdens arising as a result of the COVID-19 outbreak, Government proposes the following tax measures for tax compliant small to medium sized businesses, for a period of twelve months, beginning 1 April 2020 and ending on 31 March 2021:
- 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 from 1 April 2020 to 30 September 2020 will be based on 15 percent 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 percent 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.
- R 200 Billion guarantee scheme for SMMEs
- Assist with operational costs of firms with a turnover of less than R 300 Million.
- Support over 700 000 Firms and more than 3 Million employees
- Tax payment holidays on skills levy, carbon tax and some PAYE tax.
- The South African Reserve Bank has also made an important contribution to support the real economy. In line with its constitutional mandate, it has cut the repo rate by 200 basis points, in effect unlocking at least R 80 Billion in the real economy, and taking other steps to provide additional liquidity to the financial system.
- The section 36(11)(b) costs are not deductible immediately and may be deferred if the mine has not generated sufficient taxable mining income to use capital expenditure.
- The capitalisation of the section 36(11)(b) costs may increase the tax liability to the extent that the mine has non-mining income (that is, the section 36(11)(b) costs cannot be claimed against income other than mining income).
- Mines in an assessed loss-position or mines with non-mining income claiming the costs in terms of the incorrect section (section 11(a) as opposed to capitalising such expenditure) could overstate the company’s assessed loss or understate its taxable income. In this instance, the tax authority could levy understatement penalties.
- Mining companies need to understand the cost base, and analyse all costs to determine which costs will fall within the ambit of section 36(11)(b). An apportionment exercise may help identify costs incurred during the period of non-production and make sure that they are treated correctly for tax purposes. Also, mining companies need to consider what is the period of non-production (when does non-production start and when does non-production end).
The South African Revenue Authority (SARS) has advised that no extensions or concessions will be allowed for the late or non-submission of tax returns and payments.
As a result of the financial impact of the coronavirus (COVID-19) pandemic, there have been fluctuations in global currencies including the South African rand. These currency fluctuations may have value added tax (VAT) implications.In South Africa, a tax invoice for a supply subject to VAT (at the standard rate of VAT) must be issued in the rand. The South African Revenue Service provides approved exchange rates in Binding General Ruling 11 (BGR 11) for determining the rand equivalent of a supply when a standard-rated invoice is issued in a foreign currency.
BGR 11 provides that a supplier may use one of the following exchange rates (published on the website of the South African Reserve Bank and other resources):
- The daily exchange rate on the date the time of supply occurs
- The daily exchange rate on the last day of the month preceding the time of supply,
- The monthly average rate for the month preceding the month during which the time of supply occurs
The options listed in (2) and (3) above may not be used in “exceptional circumstances” that result in the rand value being distorted. Examples of exceptional circumstances include the collapse of a foreign currency or a fluctuation in a foreign currency of 10% or more within the month referred to in options (2) and (3). In these instances, the daily exchange rate on the date the time of supply occurs is to be used (that is, option (1) is to be used).
Given the fluctuation of the exchange rate over the past month may result in “exceptional circumstances” envisaged in BGR11, VAT-registered vendors need to be aware of the risk associated with the application of exchange rates stipulated in points (2) and (3) above, as opposed to the daily exchange rate on the date the time of supply occurs (point (1)).
Tax Implications of “repo rate” reduction
- The reduction in the repo rate could have significant implications on the calculation of the interest limitations provided for in sections 23M and 23N (sections that add back otherwise deductible interest expenditure when the amount exceeds the limitation calculated).
- Recent budget proposals indicate that tax treatment of interest deductions and other financial payments are a focus area for the South African Revenue Service (SARS). In this regard, taxpayers need to consider repo rate movements when preparing various tax calculations (including but not limited to thin capitalization or section 23M and 23N calculations).