Covid-19 Government Relief Alert

Mark Hewitt

1 April 2020

Moore: Covid-19 Government Relief Alert

Tax Update – VAT exemption on ‘essential goods’

In our previous article, released on 31 March 2020, we discussed the various tax relief measures, implemented by the South African Revenue Service (“SARS”) to curb the negative impact of the COVID-19 pandemic and the Lockdown. The article can be found HERE for reference.

The article, amongst other, communicated that the SARS published draft regulations with respect to a VAT exemption (note that this is ‘customs’ VAT and not the VAT when the imported product are sold in-country for example) and a full rebate on customs duty on ‘essential goods’ which are imported.

The SARS has subsequently amended the regulations to reflect that although a VAT exemption will be allowed for imported ‘essential goods’, a rebate of the customs duty will no longer be implemented.

The SARS has, however, not changed the regulations whereby certain medical supplies, under rebate item 412.11 of Schedule No. 4 to the Customs and Excise Act 91 of 1964, will receive a full rebate on customs duty. The list of articles for which the rebate would be applicable can be found HERE.

SARS is within its right to amend the regulations as they were still in draft format.

In order to implement a VAT exemption on these imports, an ITAC permit needs to be applied for.
The ITAC permit application form, guidelines and other regulations can be found HERE.

Tax Update – List of ‘essential goods’ and ‘essential services’

We would like communicate to our readers, that since our article on the Lockdown and what are ‘essentials goods’ and ‘essential services’, the government has expended on the list.

The updated list of additional items can be found HERE.

Tax Clarification – Deferral of PAYE and Increased ETI effective 1 April

We have received numerous queries from clients, which are asking for clarification on the effective date of the deferral of 20% of the PAYE liability and when the increased ETI will be effective. The draft regulations issued by National Treasury state that these cash flow relief measures are available from 1 April 2020 until 31 July.

The first cash flow impact will be felt when the PAYE is paid on the 7^th of May (Note – not April). Decreased PAYE and increased ETI will therefore have an impact for the EMP201’s payment for May, June, July and August. The Deferred PAYE must then be repaid before the 7^th of the following upcoming months of August, September, October, November, December, January and February.

National Treasury has furthermore clarified that the R 50 million turnover limitation relates to the turnover for the year of assessment in which the EMP201 is being submitted. For example, if the company’s year-end is February, then the threshold is based on the expected turnover for the year ending February 2021, and not the year-end that has already passed i.e. February 2020.

Although we find ourselves in uncertain times, our specialist tax teams at the Moore SA offices are committed to ensure our clients have access to the most up to date and accurate information at all times. As our government struggles to get to grips with managing COVID-19, implementing relief measures and coordinating interdepartmental communication, we remain cognisant of the fact that information can change on a daily basis.

Our commitment to our readers during the Lockdown period:

We will ensure you are at all times in a position not only make informed decisions, but to thrive in a changing world.
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In this article we don’t simply communicate the various relief measures currently proposed by government, but rather explain how and where applications can be completed and what each relief measure entails. We have condensed the most pertinent information from lengthy and in depth government sources, but request our readers to, where source documents are referred to in this article, read the article in conjunction with the source documents before making a decision.

Unemployment Insurance Fund (“UIF”) relief measures

On the morning of 27 March 2020, the Minister of Employment and Labour announced various relief measures that the Department of Employment and Labour will implement to curb the negative economic impact of the Lockdown on employers. For the sake of clarity, the Lockdown period is from midnight 26 March 2020 until midnight 16 April 2020.

There are three methods of claiming relief in relation to employee remuneration, all of which are explained in depth below:

The C19TERS Benefit
Applicable where the employer has to enforce Lockdown as regulated, the employer is unable to pay salaries and/or wages and the employer suffers financial distress.

The National Disaster Benefit
The employer decides (i.e. voluntarily), as a direct result from the current COVID-19 pandemic, to close their business for a period and send employees home and the employer is unable to pay the salaries and/or wages.

Illness and Reduced Work Time Benefit
Where the company shuts down for a certain period or implements Reduced Work Time or Short Time.

1. C19TERS Benefits explained

In view of a National Disaster being declared by the President in terms of the Disaster Management Act, the Minister of Employment and Labour issued a Directive, in terms of Regulation 10(8), per Government Gazette No 43161, called COVID19 Temporary Employee / Employer Relief Scheme (“C19TERS”).

The purpose of the Directive is to make provision for the:

Payment of benefits to Contributors (i.e. employees and employers) who have lost income as a result of the Covid-19 pandemic;
Minimise economic impact of loss of employment of the COVID-19 pandemic; and
Avoid contact during the application process for the C19TERS benefits and make provision for online services.

The Directive can be found HERE.

The following requirements must be met for employers/employees to be granted access to C19TERS:

The employer must be registered with the UIF;
The employer, as a direct result of COVID-19 pandemic, closes its operations for a period of three months or less (i.e. such as during the Lockdown period);
The employer, as a direct result of COVID-19 pandemic, is required to close its operations for a period of three months or less (i.e. such as during the Lockdown period);
The employer suffers financial distress as a direct result of the COVID-19 pandemic;
The employer is unable to pay the full salaries or wages of the employees which the employer had to send home for their health and safety due to the Lockdown; and
The employer must comply with the application procedure of C19TERS.

The following must be noted in terms of the C19TERS benefit:

This is a separate benefit and the normal benefit structure of the UIF is not applicable in this instance.
The C19TERS will only pay for the cost of the salary for the employees during the temporary closure of the business operations.
The salary benefits will be capped at a maximum of R 17,712 per month, per employee and an employee will be paid in terms of the income replacement rate sliding scale (38% - 60%) as provided in the Unemployment Insurance Act of 2001.
The C19TERS will, at minimum, pay the relevant sectors’ minimum wage. The minimum wages are as follows:
- Farmworkers – R 18.68 per hour
- Public Works Program – R 11.42 per hour
- Other workers – R 3 500 per month
- Employers governed by Bargaining Councils – refer to respective Collective Agreement.
The C19TERS scheme will be overseen by the Commission for Conciliation, Mediation and Arbitration (“CCMA”).
An employer or employee cannot apply for the C19TERS and another form of UIF compensation at the same time, as this will result in duplicate benefits being paid out. An employer can only apply for one UIF benefit at a time.
An employee or employer can choose, however, provided the requirements are met, not to claim from the C19TERS, but rather claim through the normal benefit plans available such as the “reduced work time” or “illness” plans.
Claiming from the “reduced work time” or “illness” plans could, in certain circumstances, be more favourable for the employee as in the aforementioned plans for every 4 days worked the employee accumulates 1 credit day, and maximum credits days payable is 365 for every four completed years.
The employer (and not the employee) must apply for the C19TERS benefit.
An employee who is paid in full by the employer during the Lockdown period is not entitled to this benefit.

A brochure relating to the C19TERS benefit, issued by the UIF, can be found HERE.

If you satisfy the requirements, the following documents will be required to start the application process (this information is provided to you in a response email as detailed below):

Letter of Authority, on an official company letterhead granting permission to an individual specified to lodge a claim on behalf of the company;
MOA (completion of the agreement between UIF, Bargaining Council and Employer);
Prescribed template that will require critical information from the employer;
Evidence/payroll as proof of last three months employee(s) salary(ies); and
Confirmation of bank account details in the form of certified latest bank statement.

Steps to claim via C19TERS:

Email a request for information to: covid19ters@labour.gov.za (You can insert very limited information in this email as its gets an automated response in any event);
You will receive an automated response with various document to be completed, including the MOA; and
The information is Step: 2 must be submitted to Covid19UIFclaims@labour.gov.za

Assistance can also be obtained by contacting the dedicated contact centre: 012 337 1997

Additional Notes:

The employer must open and maintain a dedicated UIF bank account which must be separate from its business account, into which account the UIF will pay the Covid-19 Benefits. This requirement is currently under review – we advise our clients, where possible, to open a bank account online in the short term until this requirement has been removed. The employer must within 5 days disburse the funds to each of the applicable employees electronically.
The spreadsheet completed and submitted must not be changed in any way as it is uploaded to the UIF system to automatically calculate the amounts due to the beneficiaries and the total amount to be transferred to the employer.
The payments will only be effected after the MOA sign off between the Fund and the Employer/Bargaining Council.

2. National Disaster Benefits explained (this is a type of UIF relief, similar to Reduced Work Time and Illness Benefits)

The Minister of Employment and Labour has furthermore put in place alternative options given the special circumstances relating to COVID-19 and its impact on UIF contributors. The UIF will compensate affected workers through a new “National Disaster Benefit” and its existing the Illness, Reduced Work Time and Unemployment benefits.

The requirements that must be met for employers/employees to be granted access to the National Disaster Benefits are as follow:

The employer has decided to, as a direct result of COVID-19 to shut down for a period of time;
The employer is registered with the UIF;
The employer makes the applicable monthly contribution to the UIF;
The employer cannot pay his employees for this period; and
The employer cannot apply if any other benefit from UIF has been claimed in regard to this period.

A very important distinction must, however, be noted when compared to the C19TERS Benefit:

The National Disaster Benefit is only applicable in the instance where an employer decides, as a direct result from the current COVID-19 pandemic to close their business for a period and send employees home. This is a voluntary decision. Employers who are mandated to close, refer HERE to determine if you are mandated to close, can claim from a more beneficial UIF compensation structure under C19TERS.

The following must be noted in terms of the National Disaster Benefit:

This is a separate benefit and the normal benefit structure of the UIF is not applicable in this instance;
The benefit will be at a flat rate equal to the minimum wage (R3 500) per employee for the duration of the shutdown or a maximum period of three months, whichever period is the shortest.
If an employee is ill, part of a temporary lay-off or unemployed for longer than three months, the normal UIF benefits, as detailed below, will apply;
An employer or employee cannot apply for the National Disaster Benefit and another form of UIF compensation at the same time, as this will result in duplicate benefits being paid out; and
The employer (i.e. not the employee) must apply for the benefit.

A detailed brochure relating to the C19TERS benefit, issued by the UIF, can be found HERE.

If you believe you satisfy the requirements, the following documents will be required to be completed to start the application process:

UI19 and UI2.7 (completed by Employer) ;
UI 2.1 (application form) ;
UI 2.8 (bank form completed by the bank);
A letter from the Employer confirming company shutdown or employee’s “temporary lay-off” is due to the Corona Virus ; and
Copy of employee’s ID document

You can obtain the application forms at: www.labour.gov.za or www.ufiling.co.za.
Assistance can also be obtained by contacting the closest UIF office.

3. UIF Benefits explained

Reduced Work Time

Where a company shuts down for a certain period or implements ‘Reduced Work Time’ or ‘Short Time’, the benefits payable by the UIF is the difference between what the employer pays and the normal UIF benefits payable should the employee lose employment.

This is a normal UIF benefit and therefore the normal benefit schedule will apply:

For every 4 days worked the employee accumulates 1 credit day, and maximum credits days payable is 365 for every four completed years;
These benefits are then paid per the prescribed benefits structure from 239 to 365 days.

The same documents are required to be submitted to the same portals, as with a claim through the National Disaster Benefit (refer above), with the exception of the additional document detailed below:

A letter from the employer confirming Reduced Work Time due to the COVID-19 pandemic.

Illness Benefit

Where an employee is quarantined for 14 days, the ‘illness; benefit process will apply.

If you believe you satisfy the requirements, the following documents will be required:

UI19 and UI2.7 (completed by Employer) ;
UI 2.2 (application form) ;
UI 2.8 (bank form completed by the bank);
A letter from the Employer confirming the employee self-quarantined due to the Corona Virus; and
Copy of employee’s ID document

The benefits the employee will receive are identical to the benefits under the Reduced Work Time benefit calculator (refer above).

Clarifying the difference between C19TERS and the National Disaster Benefit

Following numerous enquiries, it is clear that there are unanswered questions as to the differentiating factors between C19TERS and the National Disaster Benefits, both of which are paid out from the UIF.

The C19TERS scheme is a particular type of TERS scheme (previously called the “Training Layoff Scheme”) and therefore the normal TERS regulation and requirements are proposed to apply in addition to those requirements listed by the Directive issued for C19TERS. In terms of the TERS process, the UIF may fund distressed companies directly in relation to the TERS Allowance.

The distressed company will only be funded if it meets the following requirements:

The distressed company is able to demonstrate that it has been compliant with the relevant UIF legislation;
If not compliant, the distressed company undertakes to pay outstanding contributions and bring its declarations up to date within a stipulated time frame;
The distressed company is able to demonstrate that it will/or has embarked upon a turnaround or sustainability programme which will result in job preservation at the expiry of the funding agreement; and
The distressed company will be able to meet its obligations in relation to the UIF legislation.

The C19TERS scheme is therefore merely an extension of an existing financial support scheme, TERS.
The CCMA (who manages the C19TERS scheme) released a statement on 25 March 2020, whereby it clarifies that a C19TERS application can only be done if there is:

Business distress – i.e., a drop in revenue as reflected in the audited financial statements or most recent management accounts and labour costs as a high percentage of operation costs;
Employee distress – i.e., likelihood of retrenchment, short-time, and/or any other layoff;
Operational distress – i.e., occasioned by prospective business (order book) that places the business and employees at risk in anticipation of new business such as re-tooling for new production lines, etc.

The CCMA furthermore stated that:

“All the qualifying criteria are still applicable and the administrative process for application remains the same. It is likely that applications will be made as a consequence of the adverse impact of Covid-19 in the next 4 to 6 months and thereafter. Note: The TERS process is not applicable to the 21 days shutdown”.

It is seems that the CCMA is of the opinion that the C19TERS will not apply during the Lockdown period, but is rather a long term plan following the impact of the COVID-19 impact on employees and businesses.

This is in contrast to the preamble of the Directive issued by the Minister, where it is clearly stated:

“During this period of lockdown, companies will have to shut down and employees laid of temporarily….we have created a special benefit under the Unemployment Insurance Fund as per the Directive Covid-19 Temporary Employee / Employer Relief Scheme”.

There seems to be miscommunication when it comes to when a businesses can qualify for C19TERS relief between the CCMA and the Minister of Employment and Labour.

Conclusion

The Directive issued by the Minister was signed and issued on 25 March 2020 per Government Gazette No. 43161. The statement of the CCMA was also issued on 25 March 2020.

We would like to point out to our readers that the statement made by the CCMA is not legally binding. The Directive issued by the Minister is, however, a legally binding document and therefore the Directive would take precedence over the statement made by the CCMA. The Directive does not make any reference to these additional requirements that are listed by the CCMA, and therefore it is unknown at this point in time if these additional requirements would indeed apply. If the Directive is inspected on own merit, a conclusion can be reached that the additional requirements by the CCMA would not apply.

Note: Our specialist tax team is waiting on further information to clarify this point, once more information becomes available or a clarification by the CCMA is released.

Please see a flow diagram, supplied by Acts Online and supported by SA Accounting Academy, below that would assist in making a preliminary evaluation of the benefits available to an employer:

Small, Medium and Micro Enterprises (“SMME’s) relief measures

On 28 March 2020, the Minister for Small Business Development, Ms Khumbudzo Ntshavheni, published the details of the intervention measures to support SMMEs affected by the Covid-19 epidemic. The Department of Small Business Development published two methods of relief and assistance namely:

The Business Growth/Resilience Facility – specifically created to enable participation of SMME’s in supply value chains, where the business is involved in the production/supply of health care and related products to be utilised to combat COVID-19. This facility will offer working capital, bridging finance, order finance, and equipment finance.
Debt Relief Fund – aimed at providing relief on existing debt and repayments. For SMME’s to be eligible for assistance, the applicant must demonstrate the direct link to the impact of COVID-19 and the financial distress currently faced. This facility will offer finance for labour, raw material and operational costs.

To determine if your business is a SMME, the number of employees and turnover of the business is assessed. The table for assessment, can be found HERE.

A full list of requirements and documents that must be provided together with the application form can be found HERE, but the most salient requirements are:

Must have been registered with CIPC before 28 February 2020;
Must be 100% owned by South African citizens; and
Employees must be 70% South African.
The business must be tax compliant.
There are no requirements related to race.

What relief is provided under either of the two measures currently published?

Both of the above relief measures offer financial assistance in the form of ‘soft’ loans and are not in any way grants;
The loans are limited to R 500 000 per applicant;
The loans extended will carry interest at prime less 5%, but if found that the facility was abused will carry interest at prime plus 10%.

The Minister stated, on 31 March 2020, that the turnaround time will be “seven days at worst, while approval and disbursement of funds is expected to take five days”.

For both of the above relief measures the process will work as follows:

Submit the SMME information on: https://smmesa.gov.za/
Submit the applicable information to info@sefa.org.za with the reference number that was issued to the applicant during step: 1.
Upload the relevant supporting information.

The Minister disclosed that an online application will also be available from 2 April, as opposed to the manual process where the information is sent via email (as explained above).

Note: Our specialist tax team is waiting on further information and will communicate where and how the ‘online application’ can be done, once this information is released by the Department of Small Business Development.

Please see a flow diagram, supplied by Acts Online and supported by SA Accounting Academy, below that would assist in making a preliminary evaluation of the benefits available to an employer:

Compensation for Occupationally-Acquired COVID-19 relief measures

In terms of the Compensation for Occupational Injuries and Diseased Act, No 130 of 1993, as amended (“COID”) all employers and Medical Service Providers must follow the stipulated prescripts when submitting claims and supporting medical reports for COVID-19.

The emergency COVID-19 ICD-10 code: U07.1 as proposed by the World Health Organisation (“WHO”) must be used to submit claims.

The notice set out by the Compensation Commissioner clarifies that employers will indeed be able to submit claims for occupationally-acquired COVID-19 provided the following requirements are met:

Occupational exposure to a known source of COVID-19;
A reliable diagnosis of COVID-19 as per the WHO guidelines;
An approved official trip and travel history to countries and/or areas of high risk for COVID-19 on work assignment;
A presumed high-risk work environment where transmission of COVID-19 is inherently prevalent; and
A chronological sequence between the work exposure and the development of COVID-19 symptoms.

The following benefits could apply in terms of the COID:

Temporary total disablement – Payment in terms of COID shall be made for as long as the disablement continues, but not for more than 30 days.
Suspected and unconfirmed cases – the employer will be liable for the remuneration for days of absence.
Confirmed cases – Payment in terms of COID shall be made from the date of diagnosis up to 30 days.
Permanent disablement – Commissioner has a right to assess each case on merit
Death benefits – Reasonable burial expenses, widow’s and dependent’s pensions shall be payable.

A document communicating all the relevant details for claim submission and assessment can be found HERE.

Solidarity Response Fund

The government has made an initial R 150 million available as seed funding to be supplemented by further private donations. The fund is set up to assist with the prevention, care for hospital or medical care and to support those whose lives have been disrupted by the pandemic.

This relief measure issued by the government is focused in the human impact, rather than business impact. It is unknown at this point in time who can apply for the relief and how the fund will dispense its resources in order to provide relief to the affected parties.
The website of the Solidarity Response Fund can be found HERE.

Note:

A donation to the Solidarity Response Fund will require personal or business information, as a Section 18A Certificate is issued in order for an individual or business to claim a tax deduction for the donation made.

A Section 18A tax deduction is limited to 10% of the taxable income of the person who made the donation, and any Section 18A donation that cannot be deducted in a year of assessment is carried forward to the following year of assessment.

Tourism Relief Fund

The Department of Tourism has made an additional R200 million available to assist SMMEs in the tourism and hospitality sector who are under particular stress due to the new travel restrictions.

The following requirements must be met and documents provided during the application process:

Must be a registered business with CIPC.
Turnover must not exceed R2.5 million per year.
Must have a valid tax clearance certificate.
Guaranteed employment for a minimum number of staff for a period of 3 months.
Proof of minimum wage compliance.
Must provide proof of UIF registration for employees employed by the business.
Be an existing tourism-specific establishment as outline in the scope of application (suppliers and intermediaries are not eligible).
Must be in existence for at least one business financial year.
Prove that the relief is required as a result of the impact of COVID-19.
Must submit statements of financial position; over 12 months’ bank statement, balance sheet, income statements, cash flow statements.
Indicate the intended use of the resources.

The Department of Tourism has stated that the funds will be distributed as follows:

The relief will be distributed in a spatially equitable manner to ensure that all provinces benefit.
At least 70% of beneficiaries will be businesses that are Black owned.
At least 50% of beneficiaries will be businesses that are women owned.
At least 30% of beneficiaries will be businesses that are youth owned.
At least 4% of beneficiaries will be businesses that are owned by people with disabilities.

Note: Our specialist tax team is waiting on further information to clarify where and how relief can be applied for.

The Department of Trade and Industry (“DTI”) relief measures

The Industrial Development Corporation (“IDC”) together with the Department of Trade, Industry and Competition (“DTI”) has set aside R 3 Billion for industrial funding and to fast track financing requested by companies critical in assisting the South African Government (“the government”) with the prevention and containment measures of COVID-19.

Minister Ebrahim Patel further expanded on these relief provisions as follow:

R500 million has been allocated for trade finance to import essential medical products;
R700 million has been allocated for working capital and equipment and machinery;
In addition to this, the IDC is engaging industry players to address surges in demand;
Ensuring food security by prioritising support to Agriculture and food value chains;
Tourism sector support for working capital;
Bridging finance to support supply chain interruptions;
Working capital to ensure energy security by supporting suppliers of primary energy; and
Working capital and Bridging Finance to SMEs that provide components to car-makers.

Following the announcement of the abovementioned relief measures, the only guidance issued by the DTI has been the support for essential suppliers.

For our clients in the Medical Sector, please see the full explanatory document HERE as to how the DTI can provide financial assistance in the short term.

Note: Our specialist tax team is waiting on further information to clarify where and how relief can be applied for.

Rupert and Oppenheimer relief measures

The president announced that both the Rupert Family and the Oppenheimer Family donated R 1 billion of funding to assist ‘SMME’ businesses. We are aware that misinformation has lead various people to believe the funds made available by the Rupert and Oppenheimer Families are to be paid out as grants, but we can confirm that these funds will be applied, in fact, as short term ‘soft’ loans. For the sake of clarity it must be communicated that the Rupert Family and Oppenheimer family did indeed donate a R 1 billion each to Business Partners and the South African Future Trust (SAFT) respectively.

Business Partners and SAFT will, however, apply these funds as short term loans to ensure that the funds donated will not only provide immediate relief, but act as bridging finance for many SME’s going forward for many more years.

The four leading South African banks will administer the funds made available by the Oppenheimer Family and Business Partners will administer the funds made available by the Rupert Family.

In relation to the funds made available by the Oppenheimer Family, businesses can apply for funding to the value of R 750 per week per employee, for a maximum period of 15 weeks and there is no minimum monthly payment requirements at this time. The loan must, however, be repaid before the end of the loan period, which is proposed to be some time after the Lockdown and the aftermath have come to an end. The debt will be interest free for a maximum period of five years.

The following requirements must be met by the applicant:

Have a turnover of less than R 25 million;
Trading for a minimum of 24 months;
Able to provide substantive evidence that COVID-19 has negatively impacted the business;
Tax Compliant; and
Able to provide substantive evidence that it is not in a financial position to retain or pay staff.

Applications can be submitted via: saft@nedbank.co.za

In relation to the funds donated by the Rupert Family and maintained by Business Partners, businesses can apply for ‘soft’ loans with a maximum value of R 1 million for a period of 60 months.

The following requirements must be met by the applicant:

Able to provide substantive evidence that COVID-19 has negatively impacted the business;
Classified as an SME (it is unknown if a different definition is given in this regard by the fund);
Able to provide substantive evidence that it is not in a financial position to retain or pay staff;
Tax Compliant.

In order to apply for the funding, Business Partners will provide an application portal on 3 April 2020.

Note: Our specialist tax team is waiting on further information to clarify where and how relief can be applied for.

What’s Next?

Look out for our next COVID-19 Update as our team of experts analyses and communicated key developments for businesses.

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