Covid-19 relief measures ‘don’t talk to each other’, say tax experts
PwC says the UIF Ters benefit and the expanded employment tax incentive are not aligned, while Cosatu says these efforts are not protecting jobs
The lack of alignment of some of the government’s Covid-19 benefit schemes came into focus in parliament on Wednesday.
The benefit schemes were introduced to help financially distressed businesses pay salaries to their employees during the lockdown.
The total tax-relief measures introduced to help financially distressed businesses and individuals are estimated to be R70bn, with a direct cost to the fiscus of about R26bn.
In particular, financial services firm PwC raised the issue that the Temporary Employer/Employee Relief Scheme (Ters) does not talk to the expanded employment tax incentive. This has created uncertainty at a time when certainty is crucial, said PwC tax policy leader Kyle Mandy in an interview with Business Day.
This followed the presentation made by PwC’s senior manager of tax policy Greg Smith at the public hearings by parliament’s two finance committees on the draft Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill.
In the first version of the expanded employment tax incentive, which applied to all employees rather than the previously age-restricted category of workers, all workers receiving less than R4,500 would qualify for a payment of up to R750 a month for a limited period.
The expanded incentive was to last for four months from April to July. However, in the latest version of the incentive, this was amended to those receiving less than R2,000 not qualifying for the full R750 but only a 37.5% pro-rated amount.
However, Mandy pointed out that this restriction disregards what has been paid out by the Unemployment Insurance Fund (UIF) under Ters. This amount is not paid by the employer and is not remuneration and cannot be taken into account under the expanded employment tax incentive. He noted that this potentially undermines the intentions of the employment tax incentive, which is a subsidy to the employer to keep employees in work.
Another problem is that the law says workers paid less than the national minimum wage do not qualify for the expanded employment tax incentive, even if they have received the Ters benefit. For example, if an employee is paid R3,500 (equal to the national minimum wage) under Ters and the employer pays an additional amount of R2,000 to the employee as a wage, the employer will not qualify for the employment tax incentive because the R2,000 is less than the minimum wage — even though employers were encouraged by the government to top up the Ters benefit.
Mandy argued that the Ters amount must be taken together with the wage to determine whether the national minimum wage has been complied with by the employer and to determine the quantum of the subsidy the employer is entitled to.
PwC also raised concern over the lack of proper consultation on the relief measures.
Tax relief for alcohol and tobacco retailers
Other presentations were made to MPs by the SA Institute of Chartered Accountants (Saica), the SA Institute of Tax Professionals (Sait) and union federation Cosatu.
Cosatu parliamentary co-ordinator Matthew Parks raised concern that no conditions were attached to the Covid-19 relief measures that would have obliged employers to retain or create jobs. “The federation is wary of simply providing blank cheques to employers in the form of tax and other financial relief, only for those very same employers to retrench workers in their thousands. Financial relief must come with conditions.”
Saica project director Sharon Smulders raised the issue of parliamentary oversight of the emergency tax measures that were introduced before parliament could consider them.
Sait head of stakeholder management and strategic development Beatrie Gouws appealed for the government to consider extending the period of relief to assist those businesses that might still survive the Covid-19 crisis.
She also appealed for a deferral of the tax liability for taxpayers that are unable to generate any revenue from local sales as a result of the lockdown and/or any related bans, for example, alcohol and tobacco manufacturers and retailers, and health clubs. “There remain instances in which, through innovative solutions and team effort, the government and the private sector can partner to address areas where additional relief may be provided to businesses without the fiscus needing to finance the expense entirely in the short term.”
The Treasury will respond to the submissions next week.