Bowmans: COVID-19 disaster management tax relief for South Africa SMMEs

The draft Disaster Management Tax Relief Bill (DMTR) and the draft Disaster Management Tax Relief Administration Bill (DMTRAB) were released on 1 April 2020.

The two bills contain further details of the COVID-19 tax relief measures announced towards the end of March. This note considers the tax relief provided to businesses with a turnover of less than R50 million per year.

The deferral of PAYE and provisional tax will apply only:

– During the period from 1 April to 31 July 2020 (the four-month period)

– To a company, trust, partnership or individual who conducts a trade and who has a gross income of R50 million or less during the year of assessment ending on or after 1 April 2020 but before 1 April 2021, with not more than 10% of its gross income derived from interest, dividends, rental from letting fixed property or remuneration (a qualifying taxpayer).

While the relief measures are appreciated, it is highly concerning that very limited relief is provided to larger businesses with a turnover exceeding R50 million, who will also suffer as a result of the COVID-19 pandemic. The collapse of large businesses would have a catastrophic effect on the economy, including on unemployment.

The imposition of penalties and interest on large businesses struggling to meet their tax obligations (such as employees’ tax, Value Added Tax (VAT) and provisional tax) will simply pile another significant financial burden on a distressed taxpayer. We thus urge government to extend the proposed tax relief to large, compliant taxpayers and to consider extending the relief to other tax types such as VAT.

PAYE deferral

Qualifying taxpayers will be allowed to defer 20% of their PAYE liabilities in respect of the four-month period (remuneration paid in respect of April to July 2020) without incurring penalties or interest.

This deferred liability must be paid to the South African Revenue Service (SARS) in equal instalments over the six-month period commencing on 1 August 2020 (i.e. the first payment must be made by no later than 7 September 2020).

It is very important that employers who wish to defer their PAYE liabilities in terms hereof, do not understate their PAYE liability for any of the four months, as this will result in the imposition of penalties and interest. The full PAYE liability must be reflected, together with the payment of not less than 80% thereof.

Non-compliant taxpayers who have failed to submit returns or who have an outstanding tax debt of R100 or more (except if payment has been suspended, or if it is being dealt with in terms of an instalment payment agreement or compromise arrangement) will not qualify for the deferral of PAYE.

Deferral of provisional tax payments

A qualifying taxpayer that is a provisional taxpayer can pay:

– 15% instead of 50% of its estimated liability as its first provisional tax payment
– 65% instead of 100% of its estimated tax liability as its second provisional tax payment.

No interest or penalties will be imposed in respect of the deferred amount. The provisional tax that is deferred must be paid after the end of the year of assessment, as an additional (third) provisional tax payment in order to avoid interest running.

Qualifying micro businesses qualify for similar relief in respect of their interim payments as required in terms of the Income Tax Act (ITA).

Taxpayers who submit provisional tax estimates must remember that they may be called upon by SARS to justify their estimates. Should SARS be dissatisfied with the estimate, SARS could increase the amount to what it considers to be reasonable. It is to be anticipated that many businesses will have to adjust their estimates downward in light of the current crisis.

It will now be more important than ever to have a calculation that supports the provisional tax payments.

Please contact Aneria Bouwer, Mogola Makola or your normal contact in our Tax Practice for further assistance.

Bowmans is a leading corporate law firm with a highly skilled team, track record and geographical footprint to provide both upstream and downstream services to the private equity sector in Africa. www.bowmanslaw.com/service/private-equity