Menu
Tax Notes logo

South Africa Rolls out Coronavirus Tax Relief as Revenues Fall

Posted on Apr. 6, 2020

As the South African Revenue Service (SARS) announced revenue collections ZAR 66.3 billion (about $3.6 billion) short of original projections, the National Treasury announced draft tax relief measures for employers and workers affected by the coronavirus.

On April 1, the National Treasury published the draft Disaster Management Tax Relief Administration Bill, which provides for several relief measures that would apply through July 31.

According to a draft memorandum, the employment tax incentive program would be temporarily expanded to increase by ZAR 500 a month the maximum incentive that employers can claim for each qualifying employee (those between 18 and 29 who make less than ZAR 6,500 a month). Additionally, employers could claim a ZAR 500-a-month incentive for employees for whom the maximum period for the incentive has expired, and for employees ages 30 to 65.

The bill would also allow deferral of 20 percent of the pay-as-you-earn (PAYE) tax collection liability for small and medium-size enterprises until September 7, with the suspension of late penalties and interest. Deferral would also be allowed for some of the first and second provisional tax payment to SARS, with late penalties and interest suspended for deferred amounts.

According to the memorandum, COVID-19 disaster relief funds would be assessed as public benefit organizations, and donations made by disaster relief funds would be tax-exempt. SMEs that receive disaster relief fund payments would be excluded from PAYE withholding obligations.

The draft measures will be open to public comment through April 15 and would apply retroactively from April 1 through July 31, according to the National Treasury.

“The tax adjustments are made in light of the National State of Disaster and due to the significant and potentially lasting negative impacts on the economy from the spreading of the COVID-19 virus,” the Finance Ministry said in a March 29 release. “There is a critical need for government interventions to assist with job retention and assist businesses that may be experiencing significant distress.”

On the same day the relief plan was announced, SARS announced preliminary collection figures for fiscal 2019-2020 of ZAR 1.356 trillion — 4.7 percent less than the projection in the 2019 budget, but only 0.2 percent less than the revised estimate of ZAR 1.359 trillion in the 2020 budget, which was announced in February.

“Over the past years, tax revenue collections have continued to perform below expectations driven by weak economic activity, which has led to a moderation in collection of some major tax categories. Corporate income tax collections continue to underperform, driven by reduced production in the mining and quarrying and manufacturing sector,” SARS said in an April 1 release.

However, SARS Commissioner Edward Kieswetter said in a televised address April 1 that the amount collected for fiscal 2019-2020 represents a growth of 5.3 percent from the previous financial year. He said the revenue “was retrieved in a straggling economy with an annual nominal GDP growth of 4.8 percent, well below the treasury initial forecast of 7 percent at the time of the February announcement by the minister of finance.”

According to the release, growth slowed by 1.5 percent between 2018 and 2019, and world trade remained sluggish, both of which contributed to lowered PAYE collection.

VAT, which made up roughly 25 percent of the country’s revenue in 2019, and import duties contributions continue to fall, in large part because of the weak economic growth resulting in lower investment and consumer spending, the release says.

Copy RID