Finance Minister Tito Mboweni on Thursday announced tax breaks for businesses to assist with job retention, in line with the R500 billion economic stimulus packaged unveiled by President Cyril Ramaphosa on Tuesday.
The National Treasury said the measures were expected to provide about R70 billion in support, either through reductions in taxes or deferrals of tax payments for tax compliant businesses.
Ramaphosa’announced the unprecedented R500 billion economic stimulus package as part of government’s response to the Covid-19 pandemic.
The president said R130 billion would be redirected from this year’s budget, with Mboweni set to announce an adjustment budget in due course.
On Thursday morning, Treasury announced details of the tax breaks for businesses in the form of a skills development levy holiday, the fast-tracking of VAT refunds, a three-month filling and first payment deferral of the recently introduced carbon tax, and the deferral for the payment of excise taxes on alcohol and tobacco.
“The following set of measures will help businesses focus on staying afloat and paying their employees and suppliers,” the Treasury said in a statement.
It said “assisting businesses now will ensure that our economy is in a better position to recover once the health crisis starts to subside”.
“If businesses survive this testing time, the economy will be better placed to strive collectively towards economic growth that is inclusive [providing more opportunities for employment] and revenue generating [so that we are able to work towards improving the state of our fiscus],” read the statement.
The tax break interventions include:
- Skills development levy holiday: For four months from May 1, contributions to the skills development levy will be suspended to assist all businesses with cash flow. This is expected to provide relief of around R6 billion.
- Fast-tracking of VAT refunds: Smaller VAT vendors in a net refund position will be temporarily permitted to file monthly instead of bi-monthly, thereby unlocking the input tax refund faster and immediately helping with cash- flow. The SA Revenue Services is working on having its systems in place to allow this next month for category A vendors that otherwise only file in June this year.
- Three-month deferral for filing and first payment of carbon tax liabilities: The filing requirement and the first carbon tax payment are due by July 31. To provide additional time to complete the first return as well as cash flow relief in the short-term, and to allow for the utilisation of carbon offsets as administered by the department of mineral resources and energy. The filing and payment date will be delayed to October 31, providing cash flow relief of close to R2 billion.
- Deferral for the payment of excise taxes on alcoholic beverages and tobacco products: Due to the restrictions on the sale of alcohol and tobacco products, payments due next month and in June will be deferred by 90 days for excise compliant businesses to more closely align tax payments through the duty at source system with retail sales, providing short-term assistance of around R6 billion.
- Postponing the implementation of some of this year’s budget measures: This year’s national budget announced measures to broaden the corporate income tax base by (i) restricting net interest expense deductions to 30% of earnings; and (ii) limiting the use of assessed losses carried forward to 80% of taxable income. Both measures were to be effective for years of assessment commencing on or after January 1 2021. These measures will be postponed to at least January 1 2022.
- An increase in the expanded employment tax incentive amount: The first set of tax measures provided for a wage subsidy of up to R500 per month for each employee earning less than R6 500 a month. This will be increased to R750 per month at a total cost of R15 billion.
- An increase in the proportion of tax to be deferred and in the gross income threshold for automatic tax deferrals: The first set of tax measures also allowed tax compliant businesses to defer 20% of their employees’ tax liabilities over the next four months until July 31 and a portion of their provisional corporate income tax payments (without penalties or interest).
The proportion of employees’ tax that can deferred will be increased to 35% and the gross income threshold for both deferrals will be increased from R50 million to R100 million. This will provide total cash flow relief of around R31 billion with an expected revenue loss of R5 billion.
- Case by case application to Sars for waiving of penalties: Larger businesses with gross income of more than R100 million that can show they are incapable of making payment due to the Covid-19 disaster, may apply directly to Sars to defer tax payments without incurring penalties. Similarly, businesses with gross income of less than R100 million can apply for an additional deferral of payments without incurring penalties.
The following tax measures aim to assist individual taxpayers and to provide financial backing from the fiscus to donate to the Solidarity Response Fund.
- Increasing the deduction available for donations to the Solidarity Fund: The tax deductible limit for donations – currently 10% of taxable income – will be increased by an additional 10% for donations to the Solidarity Fund during the 2020/21 tax year.
- Adjusting pay as you earn for donations made through the employer: Employers can factor in donations of up to 5% of an employee’s monthly salary when calculating the monthly employees’ tax to be withheld. An additional percentage that can be factored in of up to 33.3%, depending on the employee’s circumstances, will be provided for a limited period for donations to the Solidarity Fund. This will lessen cash flow constraints for employees who donate to the Solidarity Fund.