The trying times of COVID-19: How does it affect South Africans’ tax obligations?

In response to the spread of the Coronavirus (COVID-19) around the world, many governments have announced and implemented measures to mitigate the adverse impact of the virus on the health and financial circumstances of their citizens, and on their respective economies. Here in South Africa, the government has declared the COVID-19 outbreak a national disaster, under the Disaster Management Act 57 of 2002. The South African government is also considering the approval of an economic stimulus package.

20 Mar 2020 9 min read Tax & Exchange Control Alert Article

Another issue that’s arisen, is how the outbreak affects persons and businesses in meeting their tax obligations. From a tax perspective, South African taxpayers who will be most affected by the COVID-19 outbreak in the short term, are those who are liable for employees’ tax (PAYE) and value-added tax (VAT). In this article, we discuss South African taxpayers’ obligations in respect of PAYE and VAT and look at some of the measures introduced by countries around the world.


Certain jurisdictions have provided drastic relief for VAT vendors so as to assist businesses with the knock-on effects stemming from the Coronavirus pandemic. Some examples are the following:

  • Norway reduced its VAT rate on 16 March 2020 from 12% to 8% retrospectively, to 1 January 2020 for passenger transport, public broadcast companies, admission to cinemas, sports events, amusement parks and museums, and accommodation in hotels, cabins, holiday apartments, etc. Air passenger tax is abolished for the period 1 January 2020 to 31 October 2020;
  • The New Zealand Revenue Authority announced that whilst it is unable to grant extensions for the filing of goods and services tax (VAT) returns, penalties for the late filing thereof may be remitted, and penalties for late payments due to the effects of the Coronavirus may also be remitted. To assist cash-flow, government agencies have been requested to speed up payment times when acquiring goods and services from small businesses.
  • The relief measures announced by Greece include the extension of the deadline for VAT payment, suspension of the collection of VAT debts for businesses affected by COVID-19, extension of the deadline or suspension of payment of certified tax debts and instalments of tax debt arrangements.
  • From 16 March 2020, the Slovak Republic extended the deadline for VAT payments and introduced an exemption from penalties for the late payment of taxes. It also temporarily abolished social and health insurance contributions for self-employed entrepreneurs from March until May 2020, which contributions will be payable over the following 18 months.
  • Indonesia introduced relief measures on 13 March 2020, for six months from April 2020, which include accelerated VAT refunds for 19 specific sectors.
  • In Thailand, VAT refunds have been expedited, and various VAT exemptions have been granted in respect of certain industries affected by the virus. For example, income derived by transporting key emergency supplies have been exempted from VAT.

Given the alarming rate at which the Coronavirus has been spreading in South Africa since the first case was announced on 5 March 2020, and following the President’s indication that Cabinet is finalising an economic stimulus package to counter the impact of the Coronavirus on the economy; on the basis that a temporary reduction in the VAT rate seems unlikely in view of the current fiscal position of the country at this stage, we consider the possible avenues of VAT relief that SARS may afford to South African VAT vendors.

The accelerated processing of VAT refunds for vendors which was mentioned by President Ramaphosa on 18 March 2020 as a possible relief measure would be welcomed by all and will go a long way to assist businesses who experience cash flow difficulties as a result of the impact of COVID-19.

Where businesses experience severe cash flow difficulties, SARS may in terms of section 167 of the Tax Administration Act 28 of 2011 (TAA) allow the business to settle its VAT liabilities in instalments over an agreed period. Section 168 of the TAA allows SARS to enter into an instalment payment agreement if, amongst others, the taxpayer suffers from a deficiency of liquidity which is reasonably certain to be remedied in future, if collection activity is harsh in the particular case and the deferral is unlikely to prejudice tax collection.

In terms of the VAT Act read with the TAA, a vendor is subject to a 10% penalty for the late payment of tax, and interest levied at the prescribed rate. In terms of section 215 of the TAA, a person who is aggrieved by a penalty assessment notice may request SARS to remit the 10% late payment penalty. There are specific grounds for remittance in respect of ‘nominal’ or ‘first incidence of non-compliance’ in section 217. Section 218 of the TAA provides that SARS may remit a late payment penalty if satisfied that one or more of the circumstances as listed under that section rendered the person incapable of complying with its obligations under a tax Act. These circumstances include, amongst others, a natural or human-made disaster, a serious illness or accident or any other circumstance of analogous seriousness.

Similarly, in terms of section 187(6) of the TAA, interest may only be remitted if payment was postponed due to circumstances beyond the vendor’s control. In terms of section 187(7), the qualifying circumstances are limited to a natural or human-made disaster, a civil disturbance or a disruption in services, or a serious illness or accident. In terms of SARS Interpretation Note 61 dealing with the remission of interest, it is stated that ‘circumstances beyond a person’s control’ are generally those that are external, unforeseeable, unavoidable or in the nature of an emergency, such as an accident, disaster or illness which resulted in the person being unable to make payment of VAT due.

Based on the provisions of the TAA, read with the VAT Act, it seems that where a vendor’s inability to make payment on time is as a result of such vendor having contracted a severe illness such as COVID-19, the vendor may request the remittance of late payment penalties and interest in terms of sections 218 and 187(6) of the TAA. This would be based on the grounds of having a ‘serious illness’, specifically in view of the COVID-19 outbreak being declared a pandemic and a national state of disaster being declared in terms of section 27(1) of the Disaster Management Act. Although a juristic person itself cannot suffer a ‘serious illness’, one could argue that where a juristic person’s inability to comply with its obligations under the VAT Act stem from an operational inability as a result of the impact of the Coronavirus on its staff; that such juristic person may also qualify for the relief provided for under sections 218 and 187(6) of the TAA.

Employees’ tax (PAYE)

The provisions applicable to the payment of employees’ tax and the circumstances under which interest and penalties are imposed, are similar to those applicable to VAT, with a few small differences.

In terms of paragraph 2 of the Fourth Schedule to the Income Tax Act 58 of 1962 (ITA), every resident who is an employer must pay employees’ tax to SARS within seven days after the month in which the tax was withheld. Where the employees’ tax is not paid timeously, a 10% penalty may be imposed on the unpaid employees’ tax. As is the case with VAT, sections 215, 217 and 218 of the TAA are to be applied where a taxpayer seeks to have the 10% penalty remitted.

As is the case with VAT, interest is also payable where PAYE is not paid timeously. Section 89bis of the ITA states that interest shall be levied on late payments of employees’ tax, “…unless the Commissioner having regard to the circumstances of the case otherwise directs.” Section 89bis should be read with sections 187(6) and 187(7) of the TAA. As stated in the VAT section of this article, interest will only be remitted if one of the circumstances in section 187(7) of the TAA are present.

The arguments that a taxpayer (individual or juristic person) can raise in support of remittance of penalties and interest on late payment of VAT (see above), would also apply where a taxpayer seeks to have late payment interest and penalties in respect of employees’ tax remitted.

In the context of employees’ tax, there is at least one other useful measure that taxpayers can consider using, to manage their employees’ tax obligations to SARS, which may also be to the benefit of their employees. In this regard, paragraph 10(1) of the Fourth Schedule to the ITA states the following:

“If the Commissioner is satisfied that the circumstances warrant a variation of the basis provided in paragraph 9 for the determination of amounts of employees’ tax to be deducted or withheld from remuneration of employees in the case of any employer, the Commissioner may agree with such employer as to the basis of determination of the said amounts to be applied by that employer, and the amounts to be deducted or withheld by that employer in terms of paragraph 2 shall, subject to the provisions of paragraph 11 and section 95 of the Tax Administration Act, be determined accordingly.” 

Paragraph 11 of the Fourth Schedule to the ITA states that the Commissioner may, having regard to the circumstances, issue a directive to an employer authorising that employer:

  • to refrain from deducting or withholding any amount under paragraph 2 by way of employees’ tax from any remuneration due to any employee of that employer; or
  • to deduct or withhold by way of employees’ tax from any remuneration in terms of paragraph 2, a specified amount or an amount to be determined in accordance with a specified rate or scale.

Paragraph 11 of the Fourth Schedule to the ITA further states that such a directive may be issued, amongst other reasons, to alleviate hardship to that employee due to circumstances outside the control of the employee. Section 95 of the TAA deals with estimated assessments and states that SARS must make any estimate based on information readily available to it.

In other words, these provisions make it possible for taxpayers to approach SARS and request that they are permitted to withhold from the remuneration due to their employees, an amount less than the amount(s) stipulated in the employees’ tax tables published by SARS for the 2021 tax year. Where such an agreement is in place, the difference between the actual amount withheld and paid over to SARS as employees’ tax and the amount stipulated in the employees’ tax tables, will not be subject to late payment penalties and interest.

In making a request under paragraph 10 of the Fourth Schedule to the ITA, employers can argue that the COVID-19 outbreak and the declaration of a national state of disaster, constitute circumstances warranting a reduction/variation of the amount of employees’ tax payable to SARS.

Practical considerations and proposals

A mechanism for the remittance of late payment penalties and interest arising in circumstances of severe illness or circumstances of analogous seriousness already exist in our legislation. Although we are unlikely to see any additional exemptions or VAT rate adjustments in response to the COVID-19 pandemic, considering its economic impact, SARS should at the very least follow the tax relief measures afforded by other jurisdictions and of its own accord remit late payment penalties and interest whilst everyone battles to come to terms with this pandemic.

In respect of employees’ tax, SARS needs to appreciate that many employers may be unable to pay the full amount of remuneration due to an employee in terms of his/her contract, while the state of national disaster due to the COVID-19 outbreak persists. In these circumstances, if an employee receives only a portion of his/her remuneration, but employees’ tax is still paid on the full amount due, which accrued to him/her under the contract, it may have a significant impact on such employee’s livelihood. Any request that is made under paragraph 10 of the Fourth Schedule to the ITA, to reduce the amount of employees’ tax payable due to the impact of COVID-19, should be favourably considered by SARS.

SARS could also protect vendors and its staff during this time to introduce a system whereby the application for VAT registration and supporting documentation can be submitted electronically as opposed to physically at a SARS branch office, similar to the VAT registration process already in place for foreign suppliers of electronic services. There does not seem to be any reason why such submissions must be made in person.

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