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Better ways to tax: South Africa in the spotlight

Author: ICAEW Insights

Published: 27 Nov 2020

The words 'South Africa' on a green background

The pandemic has presented governments with the opportunity to reform their tax systems with incentives and infrastructure in place to encourage investment. But will they? We take a look at what is expected from South Africa. Words by Christian Doherty.

In response to COVID-19, the South African government declared a National Disaster, and the National Treasury and the South African Revenue Service provided a number of measures to help businesses focus on staying afloat and paying their employees and suppliers.

Three types of measures have been provided for: cash flow relief, deferral of the amount that has to be paid to the Revenue Service, and relief in respect of time periods within which certain actions/functions need to be complied with. One of the cash flow relief measures includes a skills development levy holiday. From 1 May 2020, there was a four-month holiday for skills development levy contributions (1% of total salaries) to assist all businesses with cash flow.

Another relief included the fast-tracking of VAT refunds. Smaller VAT vendors that were in a net refund position were temporarily permitted to file monthly instead of once every two months, thereby unlocking the input tax refund faster and immediately helping with cash flow.

Larger businesses (with gross income of more than R100m) that can show they are incapable of making payment due to COVID-19, may apply directly to the Revenue Service to defer tax payments without penalty. Similarly, businesses with gross income of less than R100m can apply for an additional deferral of payments without incurring penalties.

The first set of tax measures also allowed tax compliant businesses to defer 20% of their employees’ tax liabilities over four months (ending 31 July 2020) and a portion of their provisional corporate income tax payments (without penalties or interest). The proportion of employees’ tax that can be deferred was increased to 35% (split equally over six months from 7 September 2020 to 5 February 2021) and the gross income threshold for both deferrals from R50m to R100m.

Should a taxpayer be a ‘qualifying taxpayer’, the provisional tax relief provided is a deferral of 35% of the provisional tax liability and is implemented as follows:

  • First provisional tax payment: Only 15% (instead of 50%) of the estimated tax liability needs to be paid in respect of the first provisional tax payment;
  • Second provisional tax payment: Only 65% (instead of 100%) of the total estimated tax liability reduced by the first provisional payment that has already been made, needs to be paid in respect of the second provisional tax payment; and
  • Third provisional tax payment: The outstanding 35% must be paid by the effective date. For micro businesses, this payment must be made on the date specified in the notice of assessment.

The filing requirement and first carbon tax payment were due by 31 July 2020. To provide time to complete the first return, as well as cash flow relief in the short term, and to allow for the utilisation of carbon offsets as administered by the Department of Mineral Resources and Energy, the filing and payment date was delayed to 31 October 2020.

The 2020 Budget announced measures to broaden the corporate income tax base by restricting net interest expense deductions to 30% of earnings; and limiting the use of assessed losses carried forward to 80% of taxable income. Both measures were to be effective for years of assessment commencing on or after 1 January 2021. These measures were postponed to at least 1 January 2022.