Extended tax relief to cost fiscus R26bn

New and expanded tax measures to help businesses cope with the effects of the coronavirus lockdown — including expanded employee tax incentives and payment delays on upcoming carbon taxes — will cost the fiscus about R26bn in forgone revenue.

New and expanded tax measures to help businesses cope with the effects of the coronavirus lockdown will cost the fiscus about R26bn in forgone revenue.

These measures include expanded employee tax incentives and payment delays on coming carbon taxes.

The measures would be split between steps that provided additional liquidity to businesses

— effectively acting as interestfree free loans that would eventually be paid back to the government — and those that would result in lower tax revenue, the Treasury said in a statement on Wednesday.

In total, tax efforts amount to R70bn and form one leg of the R500bn stimulus package announced by President Cyril Ramaphosa on Tuesday.

Business and households across the country are coming under intense strain as the lockdown — necessary to slow the spread of the coronavirus — is expected to cut economic growth at least 6.1%.

The Treasury said in its statement that since the announcement of the initial package to help tax-compliant businesses with cash flow and incentivise them to retain their employees, economic conditions in the country had worsened.

Both the Treasury and Sars “have received a large number of requests for assistance, including requests from large businesses that are also experiencing substantial cash flow difficulty”, it said.

“The National Treasury recognises that the short-term interventions announced in the first fiscal package do not go far enough in assisting businesses or households through the crisis — especially as the lockdown has since been extended.”

The measures would include an increase in the expanded employment tax incentive amount. The first set of tax measures, announced at the end of March, provided for a wage subsidy of up to R500 a month for each employee who earned less than R6,500 a month. This amount would be increased to R750 a month at a total cost of about R15bn, the Treasury said.

The first set of tax measures also allowed tax-compliant businesses to defer 20% of their employees’ pay as you earn (PAYE) tax liabilities, until July 31, as well as a portion of their provisional corporate income tax payments. This applied to businesses with turnover of less than R50m.

The proportion of employees’ tax liabilities that could now be deferred would be increased to 35%, and the gross income threshold for both deferrals would be increased from R50m to R100m, providing total cash-flow relief of about R31bn with an expected revenue loss of R5bn.

The new measures included a three-month deferral for filing and first payment of carbon tax liabilities, which were due by July 31.

This had now been pushed back to October 31 and it was expected to provide companies with cash-flow relief amounting to nearly R2bn.

The relief measures, intended to provide businesses with liquidity, would inject about R44bn into the economy.

Individuals would also benefit, with a 10% tax deduction for people who donated to the Solidarity Fund, set up to help the wider citizenry support the Covid-19 fight.

Expanded access to living annuity funds, used by many retirees, had also been proposed, to help individuals who either needed cash flow immediately or who did not want to be forced to sell due to their investments underperforming.

Other steps included the deferral of payment of excise taxes on alcoholic beverages and tobacco products, as well as a delay in the roll-out of corporate tax changes announced in the budget in February, such changes to rules governing the use of assessed losses to reduce a firm’s taxable income.

THE SHORT-TERM INTERVENTIONS ANNOUNCED IN THE FIRST FISCAL PACKAGE DO NOT GO FAR ENOUGH