Tax relief and the R500 billion breakdown

Our government has published a breakdown of its R500 billion economic support package to help battle the impact of the coronavirus pandemic. Below is a summary of how the funds will be used as well as a summary of the updated tax relief implication.

The money will be distributed as follows:

R20 billion – to fund the health response to fight the coronavirus.

R20 billion – an additional amount to be made available to municipalities for the provision of emergency water supply, increased sanitisation of public transport and facilities, and providing food and shelter for the homeless.

R50 billion – to be used to relieve the plight of those who are most desperately affected by the coronavirus through social grants.

R100 billion – to be set aside for protection of jobs and to create jobs.

R40 billion – set aside for income support payments for workers whose employers are not able to pay their wages.

R2 billion – to be made available to assist small and medium enterprises and spaza shop owners and other small businesses.

R200 billion – a loan guarantee scheme to be introduced in partnership with the major banks, National Treasury and the South African Reserve Bank to assist enterprises with operational costs, such as salaries, rent and the payment of suppliers.

R70 billion – amount of tax-related cash flow relief or direct payments to businesses and individuals.

Other measures include:

R100 million – value of assistance in the form of loans, grants and debt restructuring provided to small, medium and micro enterprises, spaza shop owners and other informal businesses.

R162 million – finance approved by the Industrial Development Corporation to support companies to procure or manufacture personal protective equipment.

A potential R80 billion – the amount unlocked after the South African Reserve Bank cut the repo rate by 200 basis points.

The President stated that funding for this package will be raised locally through institutions such as the Unemployment Insurance Fund (UIF), and through international groups such as the World Bank and the International Monetary and that cabinet has agreed to a phased re-opening of the country’s economy.

Additionally, President Ramaphosa also announced further tax measures to assist businesses and their employees through the difficult Covid-19 period.

The additional tax relief measures include the fast-tracking of VAT refunds to help with cash flows, a four-month holiday for company skills development levy contributions and a three-month delay for the filing and first payment of carbon tax.

Taxpayers who donate to the Solidarity Fund, set up to aid vulnerable South Africans, support initiatives that are set in place to contain the spread of Covid-19 in South Africa and drive the solidarity campaign, will also now be able to claim up to an additional 10% as a deduction from their taxable income.

The aim of the deferral of employees’ tax and provisional tax payments is to alleviate the cash flow burden in the short term so that businesses can pay their staff and suppliers.

Tax compliant Small, Medium and Micro Enterprises (SMMEs) with a turnover of up to R100 million, (where it was previously R50 million) can now defer 35% (previously 20%) of their employees’ tax payment for the months of April to July without incurring penalties and interest.

Further, tax compliant businesses with a turnover of more than R100 million will be able to apply to SARS to defer their employees’ tax and provisional tax obligations and this will be assessed on a case-by-case basis.

In March, President Ramaphosa announced that, in terms of the draft Disaster Management Tax Relief Bill (Bill), Government would provide a tax subsidy of R500 per month, not only for qualifying employees under the current Employment Tax Incentive (ETI), but for all private sector employees who earn less than R6,500 per month.

The incentive can be claimed for a period of 24 months at R1000 per qualifying employee per month for the first year and R500 per qualifying employee per month for the second.

On another positive note, but this time regarding Social Welfare support, the government has announced an increase in funding as follows:

Child support grant beneficiaries will receive an extra R300 in May and from June to October they will receive an additional R500 each month.
All other grant beneficiaries will receive an extra R250 per month for the next six months. A special Covid-19 Social Relief of Distress grant of R350 a month for the next 6 months will be paid to individuals who are currently unemployed and do not receive any other form of social grant or UIF payment. The Department of Social Development will issue the requirements needed to access and apply for this funding.

Author Craig Tonkin

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