By Yolandi Esterhuizen
The June lockdown on Covid-19 posed a challenge for South African businesses and was hit by the riots in KwaZulu-Natal and Gauteng in July.
The government has responded with a range of tax breaks to help small, medium and large businesses recover, though some argue that more could be done.
Let’s take a closer look at three key tax measures the government has put in place to help private businesses cope with the current crisis:
Extended Income Tax Incentives (ETI)
The expansion of the ETI program was one of the extraordinary tax measures the government announced in response to the Covid-19 crisis and tough lockdown in 2020. The first extension was valid for four months, from April 1 to July 31, 2020. The government has now decided to temporarily reintroduce this measure for four months between August 1 and November 30, 2021, the conditions of which correspond to the original concept:
- The maximum allowable monthly ETI amount per eligible employee is increased by 750 R 750, from 1,000 R 1,750 in the first 12 qualifying months and from 500 R 1 250 in the second 12 qualifying months.
- Employers can also apply for up to R 750 per month during these four months for workers aged 18-29 (or workers of any age employed in a special economic zone) who are no longer eligible for the ETI because they have the incentive for these workers have claimed for 24 months.
- A maximum of R750 can also be claimed for employees between the ages of 18 and 29 who were employed before October 1, 2013.
- You can also claim up to R750 per month during these four months for employees aged 30 to 65 who are not eligible for the EIT due to their age.
- The South African Revenue Service (Sars) will use a formula that includes the incentive with a positive rate for compensation of up to R2,000 per month, with a constant value for compensation between R2,000 and R4,500 per month and a decreasing compensation rate introduces between R4 500 and R6 500. If the employee’s remuneration is R6 500, the incentive is zero.
- ETI refunds are paid monthly instead of twice a year to get cash into the hands of tax-compliant employers as quickly as possible.
The expanded EIT has given a lifeline to many smaller businesses during the two major crises South Africa faced. We welcome the expansion of the scope of this program in order to promote wider acceptance and employ more young people.
PAYE tax deferral for small and medium-sized businesses
The government is bringing back another tax break, last seen in 2020, in the form of postponing PAYE payments. This time, the relief measure will last three months from August and will apply to small or medium-sized enterprises with a gross income of Rand 100 million and below. Companies can defer 35% of their PAYE liability without Sars applying administrative penalties and interest.
The deferred tax will be repaid in equal installments over a period of four months, starting on November 1, 2021, with the first payment due on December 7, 2021. While this measure can help some small businesses feel confident that their cash flow problems will be scarce-lived, it is not advisable to use this relief unless necessary.
Deferred excise duties on alcoholic beverages
In addition, similar to the government in 2020, they are offering licensees in the alcohol sector a postponement of excise duty payments for up to three months upon request. This industry has been particularly hard hit during the alcohol ban era, and such a humble gesture may not be enough to prevent further closures or cuts in this sector in the coming months.
Look beyond emergency aid
With the Treasury under tremendous pressure, the government has had to dig deep to afford the limited tax breaks it has introduced for troubled businesses. It has primarily stuck to last year’s measures and pledged to support uninsured SMEs affected by the recent riots and looting.
However, we hope that our newly appointed Finance Minister Enoch Godongwana will review the tax system for small businesses before the next tax year. With the vaccination program accelerating, now is the time to look beyond emergency relief to a recovery based on sustainable growth.
Yolandi Esterhuizen, Registered Tax Practitioner and Director: Product Compliance, Sage Africa and Middle East