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An Unprecedented R500 Billion Relief Package

An Unprecedented R500 Billion Relief Package

Mark Hewitt

At approximately 8:30 pm on 21 April 2020, President Cyril Ramaphosa announced a government backed COVID-19 relief package of unparalleled magnitude never before seen – worth an estimated R500 billion. This roughly equates to 10% of the South African GDP.

To put this in perspective – it is roughly R50 billion more than the entire Eskom Debt to date, which has dominated the news headlines over the recent years. The majority of the R500 billion relief package will be funded by additional debt the government will bring onto the balance sheet of South Africa from various international financial institutions, with the minority of the relief package being funded via available government funds and a reallocation of the current budget

The President’s speech can be summarised with the following quote:

“Our country and the world we live in will never be the same….Our new economy must be founded on fairness, empowerment, justice and equality”

Time will tell what our ‘new economy’ will entail, but for now we must focus on employment, cash conservation and the protection of business at large.

The full speech of the President can be read HERE.

The President announced various measures that will be made available in the upcoming days and weeks to provide relief to businesses. We have discussed these measures below, based on information available to date:

What are the key cash flow relief measures announced?

In addition to the previous relief measures (our article unpacking these relief measures can be found HERE – note that an updated article will be released soon), the President announced the following:
  • R200 billion loan guarantee scheme in partnership with all major banks, the National Treasury and the South African Reserve Bank will be launched. During the initial phase, the loans will be advanced to companies with a turnover of less than R300 million a year to assist with operational costs such as salaries, rent and payment of suppliers.
  • It is important to note that the above relief measure is in the form of a loan, and accordingly repayment will be required in terms of the loan agreement’s terms and conditions.
  • Banks are currently designing the practicalities around this scheme and it is expected that this relief measure will be made available before the end of April.
What are the key Tax and SARS related measures announced?

Please refer HERE and HERE for our latest articles on the tax related relief measures previously announced by the President and the National Treasury. The latest relief measures, which are in addition to or an expansion of the previous tax relief measures available, are listed below:

A four month payment holiday for companies’ skills development levy (“SDL”) contributions.

We suspect this relief will be for the same periods as with the current PAYE relief i.e. effective for the EMP201 submission due on the 7th of May, June, July and August. Details have not yet been released and we will communicate any such information available to our client base, once the National Treasury has released formal explanatory guidelines.

Fast-tracking VAT refunds.

VAT vendors, who are compliant and are in a VAT refundable position, should expect faster payment by SARS of the refund due, subject to verification and other administrative procedures by SARS.

A three month delay for filing and first payment of the Carbon Tax.

Read our articles on Carbon Tax and how we can assist HERE and HERE. The first Carbon Tax submission deadline was due on 1 July 2020, for the period 1 June 2019 – 31 December 2019. This submission and payment deadline has now been extended by 3 months (i.e. 1 October 2020).

An expansion of the current relief measure for the deferral of a portion of PAYE.

A detailed explanation of this relief measure can be found HERE.
This relief measure remains the same, with the exception that the requirements for eligibility has been expanded.

The requirements have been amended as follow:
  • The turnover of the employer must be below R100 million (previously R50 million) for the year of assessment ending after 1 April 2020 and
  • The PAYE percentage that can be deferred has increased to 35% (previously 20%).
An expansion of the current relief measure for the deferral of a portion of Provisional Tax.

A detailed explanation of this relief measure can be found HERE.
This relief measure remains the same, with the exception that the requirement for eligibility, which entails that the turnover of the employer must be below R50 million has been expanded.

The requirement has been amended as follows:
  • The turnover of the employer must be below R100 million (previously R50 million) for the year of assessment ending after 1 April 2020.
Businesses with a turnover of more than R100 million a year can apply directly to SARS on a case-by-case basis for deferrals of their tax payments.

In this regard no further publications or explanatory documents have been issued by the National Treasury or the SARS. We urge our clients to only make decisions based on sound information from credible sources and not interpretations or opinions.

Until such time, as the National Treasury and SARS release further clarifications and explanatory documents, we urge our readers not to execute decisions which could result in penalties and interest being levied by SARS for late submission or payment of returns due (i.e. VAT due by 30 April etc.)

We are analysing information as and when it is released and will communicate all developments in this regard, as they occur - subject to the information being from a credible, accurate and verifiable source (such as SARS or National Treasury).

Donations made to the Solidarity Fund will receive an additional 10% deduction from the donor’s taxable income.

Previously, a donation to the Solidarity Fund would be eligible as a Section 18A (of the Income Tax Act No.58 of 1962, as amended) tax deduction. This entails that the value of the donation would be deductible against the taxable income of the taxpayer (i.e. donor) limited to 10% of the taxable income of that taxpayer.

This relief measure has been expanded. It is proposed that taxpayers who donate to the Solidarity Fund will be able to claim up to an additional 10% of taxable income as a tax deduction.

It is uncertain how this additional 10% will influence the tax deductibility of other Section 18A donations made and how this increased threshold will be implemented. We await further information from the National Treasury.

A quote from the President:

“In total these tax measures should provide at least R70 billion in cash flow relief or direct payments to businesses and individuals.”

What are the other relief measures announced?
  • An additional R20 billion will be directed towards the government’s health response;
  • An additional R20 billion will be made available for municipalities;
  • An additional R50 billion will be made available for the most vulnerable members  of our society via a temporary COVID-19 grant (R350 per month for the next six months), increased child support grants (additional R300 in May and an additional R500 from June to October) and increased grants for all other grant recipients (additional R250 per month for the next six months);
  • 250 000 food parcels to be distributed during the upcoming two weeks;
  • R100 billion set aside for job creation and job protection;
  • COVID-19 TERS, managed by the UIF, will continue to distribute R40 billion through eligible claims;
  • An additional R2 billion is allocated for SME’s and Spaza shop owners and other small businesses (it is unknown if this will be via the current Debt Relief or Growth Funds, which are loan funding scheme’s or other mechanisms); and
  • R162 million has been extended as loans to manufacturers of PPE.
Note: Our specialist tax team is keeping abreast of all developments and will communicate these developments once accurate, relevant and valid information becomes available.

What’s Next?

Look out for our next COVID-19 Article as our team of experts provide an update on the latest developments following the speech by President Cyril Ramaphosa.

Author: Mark Hewitt from Moore Cape Town’s specialist Tax and Advisory Department