National Treasury issued the Explanatory Notes on Covid-19 Tax Measures on 29 March 2020. The notes expand on the exceptional fiscal package outlined by President Cyril Ramaphosa in his speech on 23 March 2020. Draft tax bills on these measures should be circulated for comment by 1 April 2020.

In addition, we set out below updates on the South African Revenue Service (SARS) website on:

• customs duty and value-added tax (VAT) concessions on the importation of "essential goods";
• extension of time periods by three months for direct and indirect exports;
• days not taken into account for customs and excise internal administrative appeals.

Employment tax incentive relief

From 1 April 2020 to 31 July 2020, employers will be able to claim an additional employment tax incentive relief (ETI) as follows:

• an additional ZAR500 per qualifying employee - i.e. an increase from ZAR1000 to ZAR1500 in the first qualifying 12 months, and from ZAR500 to ZAR1000 in the second qualifying 12 months;
• ZAR500 for each qualifying employee (18 to 29 years) who is no longer eligible for the ETI as the employer has claimed ETI on those employees for the qualifying 24 months;
• ZAR500 for each employee between 30 to 65 years who does not qualify for the ETI due to age.

ETI reimbursements will be processed monthly, as opposed to twice a year.

The above relief will only be available to tax-compliant employers who are registered with SARS on 1 March 2020.

Deferral of employees' tax for small- to medium-sized businesses

Small- to medium-sized businesses are those with an annual turnover of less than ZAR50-million.

These businesses will be able to defer payment of 20% of their employees' tax (PAYE) liabilities due and payable for the period 1 April 2020 to 31 July 2020, without penalties and interest. The relief will be available to tax-compliant businesses.

The 20% deferral will be payable in equal instalments over six months from 1 August 2020, i.e. the first instalment must be paid by 7 September 2020.

Deferral of provisional tax payments for small- to medium-sized businesses

Small- to medium-sized companies conducting trade with an annual turnover of less than R50-million will be able to defer their first and second provisional tax liabilities as follows:

• 15% of the estimated tax liability for the year of assessment is to be paid as the first provisional tax payment (instead of 50%);
• 50% is to be paid as the second provisional tax payment; and
• 100% of the estimated tax liability will need to be paid by the third provisional top-up date to avoid interest. The due date for the third provisional top-up payment is 30 September for taxpayers with February year-ends, and six months after the end of the financial year for all other year-ends.

The above will apply to:

• first provisional tax periods ending on or after 1 April 2020 but before 1 October 2020; and
• second provisional tax periods ending on or after 1 April 2020 but before 1 April 2021.

Provisional tax payment relief for sole-proprietor businesses has not yet been finalised. (One possibility is that they could be eligible for similar relief if their annual turnover is less than ZAR5 million and less than 10% of their income is from interest, dividends, foreign dividends, rental and remuneration.)

Customs duty and VAT concessions on importation of "essential goods"

SARS issued a media statement on 27 March 2020 (updated on 29 March 2020) on certain customs duty and VAT concessions on the importation of "essential goods" as defined in the regulations issued under the Disaster Management Act.

Importers will be able to claim a full rebate of customs duty and VAT exemption on the importation of certain goods.  These goods may be entered under full rebate as item 412.11 of Schedule 4 of the Customs and Excise Act, and exempt under item 412.11/00.00/01.00 of Schedule 1 to the VAT Act.  A list of the qualifying goods is available on the International Trade Administration Commission (ITAC) website.

However, in order to claim customs duty relief under item 412.11, the importer will need to obtain an import certificate (permit) from ITAC. We understand that ITAC will expedite the issue of these certificates and that the information required to apply for such certificates is available on the ITAC website.

If an ITAC import certificate is required for customs duty purposes, that certificate will suffice for the purposes of claiming a VAT exemption on the importation of the same goods.  It is not clear at the moment whether an ITAC import certificate will be required when the relevant goods are not subject to customs duty, but will nevertheless qualify for VAT exemption.

It is important to bear in mind that the Covid-19 VAT concession referred to above only applies to VAT incurred on importation of the listed goods, and not on the subsequent supply of these goods by VAT vendors.

Extension of time periods for direct and indirect exports

SARS issued Binding General Ruling 52 (BGR 52) on 26 March 2020 to extend the time periods for direct and indirect exports where the prescribed timelines have not yet been exceeded.

Generally, direct exports are exports where the vendor bears the costs of transport and delivers the goods to the export country. The vendor must obtain the required documentary proof and export the goods within 90 days of the earlier of the date of invoice or any payment. BGR 52 extends the 90-day period by an additional three months.

Generally, indirect exports are exports where (1) the vendor levies VAT at 15% and the foreign purchaser claims a VAT refund from the VAT Refund Administrator; or (2) where the vendor zero-rates the export where the export is by ship or air, or in certain instances, by road or rail. For (1), BGR 52 provides that the goods must be exported within 90 days of date of invoice, and the foreign purchaser must claim the VAT refund within 90 days of date of export. For (2), the goods must be exported by the vendor within 90 days of the earlier of date of invoice or any payment. BGR 52 extends the 90-day period for both (1) and (2) by an additional three months.

BGR 52 refers to the Covid-19 pandemic as circumstances beyond the control of the vendor, which includes natural or human-made disaster.

Extension of days in customs and excise internal administrative appeals

The days between 27 March 2020 and 16 April 2020 will not be taken into account when determining the days or periods allowed for complying with any provision of the Customs and Excise Act on internal administrative appeals.

It is still unclear whether there would be a similar dispensation for the dispute resolution process for objections and appeals in terms of the Tax Administration Act (TAA).

Practical points on late payments

There has been no relief outlined for late VAT payments by vendors. There will thus be 10% late payment penalties and interest imposed on any VAT payments made after their due dates, regardless of the vendors' VAT turnover.

Other than the ETI relief above, there is no PAYE or provisional tax relief for large businesses.

Currently, there is a 10% late payment penalty on PAYE paid after the 7th of every month, and a 10% late payment penalty for late payments of provisional taxes. In addition, there is a 20% underestimation penalty if the estimated taxable income used for the second provisional tax calculations is less than 90% of the actual taxable income.

The 10% late payment penalties and 20% underestimation penalties are percentage-based penalties in the TAA. The percentage-based penalties may be remitted in exceptional circumstances, if the taxpayer was "incapable of complying with the relevant obligation" in a tax statute.

The list of exceptional circumstances includes:

• natural or human-made disaster;
• disruption in services;
• serious financial hardship, e.g. in the case of a business, an immediate danger that the continuity of business operations and the continued employment of its employees are jeopardised.

Given that BGR 52 has referred to the Covid-19 pandemic as circumstances beyond the control of taxpayers, it is likely that the pandemic would similarly constitute exceptional circumstances for any requests for remission of percentage-based penalties and interest in the TAA.

Nevertheless, any requests for remission of penalties and interest will be on a case-by-case basis. A SARS committee considering the request is likely to be guided by the principles of whether objectively (1) the taxpayer was incapable of complying with its tax payment obligations; and (2) the documents provided to support this allegation are accurate and reliable.

It would be useful for businesses to maintain records over the coming months of the following:

• the type of business interruptions experienced. This could be in the form of number of cancellations of existing clients, bad debts, number of debit orders bouncing and amounts, late payments from customers, agreements being renegotiated, and discounts given. Businesses should also document steps taken to mitigate the above;
• monthly cash balances and forecasts of turnover, cash flow and debtors on various dates. This is to demonstrate an ongoing assessment of the financial health of the business, and corresponding decisions taken;
• detailed payroll calculations and PAYE statements of accounts at various dates. The PAYE statement of account currently levies a 10% late payment penalty if payment reflects after the 7th of every month. It is still unknown how the 20% deferral and ETI payments will be administered on the PAYE statement of account. If the PAYE statement of account in the interim period does not reflect balances accurately, employers should undertake their own detailed payroll calculations and make payments accordingly;

VAT calculations and financial impact of the disaster on turnover and collections over the next few months.

The relief measures of ETI, and deferral of PAYE and provisional tax payments, will take effect from 1 April 2020. The Disaster Management Tax Relief Bill and Disaster Management Tax Relief Administration Bill will be passed later in the year when Parliament reconvenes, with retrospective effect.

National Treasury and SARS are also considering additional exceptional adjustments to assist with Covid-19 relief and the tax treatment of the newly-formed relief funds.

The Webber Wentzel tax team will continuously be making submissions during this process.

It is vital that taxpayers continue to meet their other tax compliance obligations where no concession has been granted. SARS has set out additional information about its contact details and limited operations available during the lock-down.  To view this information on the SARS website, please click here for Covid-19 specific updates from SARS and here for the address by Commissioner Kieswetter. ​

Written by Joon Chong, Des Kruger, Graham Viljoen, Shirleen Ritchie from Webber Wentzel