In our Tax & Exchange Control Alert of 3 April 2020, we discussed two proposals contained in the 2020 Draft Disaster Management Tax Relief Administration Bill (Draft Tax Relief Admin Bill) and the Explanatory Memorandum on the Disaster Management Tax Relief Bill, 2020 (Draft) (Draft EM). The proposals discussed were the deferral of the payment of the employees’ tax liability for tax compliant small to medium sized businesses and deferral of the payment of provisional tax liability for tax compliant small to medium sized businesses.
In this article we discuss the further measures announced by the President that amend the scope of these proposals that are contained in the Draft tax Admin Bill and the Draft EM.
Proposed expansion of the definition of qualifying taxpayer
The Draft Tax Relief Admin Bill proposed that for a period of 12 months, beginning 1 April 2020 and ending on 31 March 2021 tax compliant small to medium sized businesses can defer a portion of their first and second payment of their provisional tax liability to the South African Revenue Service (SARS), without SARS imposing administrative penalties and interest for the late payment of the deferred amount.
The first provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15% of the estimated total tax liability, while the second provisional tax payment from 1 April 2020 to 31 March 2021 will be based on 65% of the estimated total tax liability. Provisional taxpayers with deferred payments will be required to pay the full tax liability when making the third provisional tax payment in order to avoid interest charges.
The Draft EM stated that a small or medium sized business is defined as any company conducting a trade with an annual turnover not exceeding R50 million. In terms of the Draft Tax Relief Admin Bill, a “qualifying taxpayer” was defined as a company, trust, partnership or individual that has a gross income of R50 million or less during the year of assessment ending on or after 1 April 2020 but before April 2021. The “gross income” must not include more than 10% of the income derived from interest, dividends, foreign dividends, rental from letting a fixed property and any renumeration received from an employer.
The President announced that in order to assist a greater number of businesses, the previous turnover threshold of R50 million for tax deferrals will be increased to R100 million a year. This will significantly increase the number of businesses that will be eligible for the deferral of their tax liability. The Media Statement released by National Treasury on 23 April 2020, also states that businesses with a gross income of less than R100 million can apply to SARS for an additional deferral of payments without incurring penalties.
Deferral of tax payments
The President also announced an additional measure applicable to businesses with a turnover that exceeds R100 million. It was announced that businesses with a turnover of more that R100 million a year can apply directly to SARS on a case-by-case basis for deferrals of their tax payment. No penalties for late payment will be applicable if these businesses can show that they have been materially negatively impacted during this period. It is not clear from the announcement by the President nor from the Media Statement which tax payment can be deferred on a case-by-case basis, however it appears that businesses can apply to have any of their tax payments deferred, which includes PAYE and provisional tax payments.
The period referred to by the President will likely be defined in the amended draft bills, which are due to be released by 30 April 2020. It is also anticipated that the definition of qualifying taxpayer will be amended in line with the President’s announcements and what was stated in the Media Statement. Furthermore, although the President uses the term turnover, in view of the wording in the Draft Tax Relief Admin Bill, it is likely that the draft and final legislation that will be introduced will refer to the gross income of the taxpayer.
Increase in the proportion of employees’ tax that can be deferred
In the Draft Tax Relief Admin Bill, it was proposed that for a period of four months, beginning 1 April 2020 and ending on 31 July 2020, qualifying taxpayers will be able to defer the payment of 20% of the PAYE liability, without SARS imposing administrative penalties and interest for the late payment thereof.
The deferred PAYE liability must be paid to SARS in six equal instalments over the six-month period commencing on 1 August, that is, the first payment must be made on 7 September 2020. The Draft Tax Relief Admin Bill states that the six-month period will come to an end on 5 February 2021.
The President announced, and it was later confirmed in the Media Statement, that the portion of PAYE liability that can be deferred will be increased from 20% to 35%. The expanded definition of qualifying taxpayer will also be applicable to this proposal.