NEWS ANALYSIS: A look at possible provisions for businesses to get tax relief because of the Covid-19 crisis
The tax relief measures announced by the government have been widely welcomed as means to mitigate the economic hardship for small and medium-sized businesses, caused by the lockdown to curb the spread of Covid-19.
The government announced relief for tax-compliant businesses with a turnover of less than R50m for employees’ tax, provisional tax payments and the employment tax incentive.
Joon Chong, tax partner at Webber Wentzel, says there has been no relief outlined in terms of late payments of VAT. She notes that VAT vendors who have monthly payment obligations have a payment due on April 7.
“There is no indication that there will be any relief (for late payments). This means that VAT vendors should only delay their VAT payments as a last resort to avoid the automatic 10% late payment penalty when payments are made after their due dates,” she warns.
Cliffe Dekker Hofmeyr’s law and tax experts Aubrey Mazibuko and Louis Botha note that tax compliant businesses with a turnover of less than R50m will be allowed to delay 20% of their PAYE liabilities over the next four months without penalties or interest. There is also relief in the form of a deferral of provisional tax payments for smaller businesses. However, provisional tax payment relief for sole-proprietor businesses has not been finalised.
Chong says the deferred payment of 20% of PAYE over the next four months is only applicable to smaller companies. No relief was offered to companies with turnover of more than R50m.
“There is a 10% late payment penalty on PAYE paid after the seventh of every month, and 10% late payment penalty for late payments of provisional taxes.”
Chong explains that there is a 20% underestimation penalty where the estimated taxable income used for the second provisional tax calculation is not at least 90% accurate. However, she says the Tax Administration Act provides for the remittance of penalties in exceptional circumstances.
The SA Revenue Service (Sars) must remit the penalty, or a portion thereof, if the tax authority is satisfied that the taxpayer was “incapable” of complying with the obligations under the relevant tax acts. One of the circumstances that may render a person incapable of complying with their tax obligations is a natural or human-made disaster. A civil disturbance, or disruption in services may also render a person “incapable” of complying with his tax obligations as set out in the relevant act.
Chong also notes that the Tax Administration Act provides for the remittance of penalties in a case of serious financial hardship where there is an “immediate danger” that the continuity of business operations and the continued employment of its employees are jeopardised.
Sars has indicated that any remission of penalty and interest requests will be done on a case-by-case basis. A Sars committee considering the request is likely to be guided by the principle of whether the taxpayer was incapable of complying with their tax payment obligations, and the documents provided to support this allegation are accurate and reliable. Chong suggests companies should maintain records over the coming months of business interruptions.
“This could be in the form of the number of cancellations of existing clients, bad debts, the number of debit orders bouncing and amounts, late payments from customers, agreements being renegotiated and discounts given.” She advises companies to keep records of their payroll calculations, and importantly, PAYE statements of accounts at various dates.
“It will be vital for employers to undertake their own calculations and payments made of the 80% payroll amounts.” Chong says it is imperative that taxpayers continue to try to meet their tax obligations “in full and timeously” where possible.
“This is to ensure that Sars and National Treasury are able to collect the revenue necessary to support Covid-19 disaster relief efforts and medical costs.”
Keith Engel, CEO of the South African Institute of Tax Professionals, says tax practitioners need to inform their clients of the available Covid-19 relief mechanisms.
“These relief mechanisms not only include assistance on the tax side, but also subsidies from other departments, such as the departments of labour and small business.”
Engel adds that thorough paperwork will be essential for prompt access to the relief.