Help for taxpayers: Tax breaks, relaxed rules for companies, some individuals amid crisis
- Treasury has announced new emergency measures to boost companies' cash-flow and prevent job losses due to the coronavirus crisis.
- This includes that companies can now get R1 500 a month back per worker (who earn less than R6 500) they employ.
- Provisional taxpayers also only have to pay 65% of their tax liabilities in the current tax year.
- For more stories, go to Business Insider South Africa's home page.
In a statement released by Treasury on Monday, government confirmed details of emergency measures that will help ease the tax repayment burden on some businesses and provisional taxpayers.
Treasury says the majority of South African employers during the coronavirus crisis are likely to experience "severely reduced revenue", and may have to consider cutting staff numbers. It is hoped that the new tax measures - which are only temporary - could help curb these job losses and prop up dwindling cash flows.
Here are the three main proposals:
Companies can claim back up to R1 500 a month per employee (for some workers)
Government will extend its existing Employment Tax Incentive (ETI) programme, aimed at young workers, to all ages – and it will hike the amount of money companies can claim.
Currently, for every worker who earns less than R6 500 and is younger than 30 years, employers can claim back R1 000 a month in the first year of employment and R500 in the second year of employment from the SA Revenue Service. This is done by claiming back the amount of employees’ tax (PAYE) they paid to SARS, which reimburses these amounts twice a year.
Now, companies will able to claim R1 500 in the first year and R1 000 in the second year for employees younger than 30.
Also, companies will get R500 for all workers up to the age of 65 who earn less than R6 500 a month. For young workers who have already been covered by the ETI payments for two years, employers will get R500 for each of them.
And SARS will pay back the PAYE reimbursements every month – instead of twice a year.
Treasury says this will help get cash into the hands of tax compliant employers as soon as possible.
Small and medium-sized business can delay paying PAYE tax to SARS
Currently, businesses deduct PAYE tax from employees and have to pay it over to SARS within seven days after month-end. They face penalties and interest if the payments are late.
Now, for the next four months, companies can keep 20% of the PAYE payment – without any facing penalties or interest.
But they will have to pay back this amount in equal instalments, with the first payment expected on 7 September 2020.
This offer is only open to businesses with an annual turnover below R50 million, provided they don’t have any outstanding tax returns or tax debt.
Delay in payment of provisional tax
Currently, every provisional taxpayer (these are companies and individuals who earn income other than a salary) must make two tax payments a year. The first is 50% of what the taxpayer estimates the total liability will be for the year, and it is paid within the first six months of the tax year. The second comes at the end of the tax year, and is the actual tax amount for the year, minus the first payment. Penalties for late payment, or under payment, are levied, together with interest.
Now, provisional taxpayers will only have to pay 15% of the estimated total tax liability for the first provisional tax payment. The second provisional tax payment will be based on 65% of the estimated total tax liability. The outstanding amount must be paid 30 September 2021 (or six months after a company's financial year-end), to avoid interest charges.
Take this example: a company’s financial year ends on 28 February and it estimates that it will have to pay R800 00 in tax for the year. Its first payment (due by 31 August 2020) will be R120 000 (15% of R800 000). In the past, it would have had to pay 50% - or R400 000. Then, by 28 February it has to pay R400 000. For the year, it paid R620 000 – which is 65% of the total amount. The remaining balance of R280 000 needs to be paid by 30 September 2021 to avoid interest charges.
These measures will apply to companies with an annual turnover of less than R50 million. While it hasn’t finalised which individuals would be eligible, Treasury says that it will probably be those who have a turnover of less than R5 million and don’t earn more than 10% of their turnover from interest, dividends, foreign dividends, rentals from letting fixed property and pay received from an employer.
“Allowing for a deferred payment of provisional liabilities should assist these businesses by providing additional cash flow during the crisis. This could be the difference between pushing a small or medium sized business into liquidation, or providing some space for the business to get through the crisis and add to the economic recovery, hopefully being a source of higher tax revenue in the medium term,” Treasury said.
Both companies and individuals can’t have any outstanding tax debts, or tax returns to be eligible for this relief.
Whilst these measures are welcome and do offer relief to taxpayers, it is possible that some taxpayers will be excluded from the relief offered as their tax affairs are not in order, says Natalie Napier, a tax consultant with Evershed Sutherland. “For the non-compliant taxpayers there may still be the opportunity of seeking some form of deferral or compromise with SARS, as in the current circumstances, the collection of outstanding taxes may otherwise become impossible and it may still be to the best advantage for SARS to collect some taxes, albeit not the full amount owing.”
Last week, government gazetted new details to about the Covid-19 Temporary Relief Benefit scheme, which will see the Unemployment Insurance Fund pay out money to companies who can’t afford it, to help pay salaries.
The article has been updated to clarify the position for workers between 30 and 65 under the new ETI scheme.
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