South African companies – especially small and medium businesses – are facing tough times as the extension of the national lockdown takes effect and as the COVID-19 pandemic continues to cause turmoil in economies across the world.
One relief measure that may help these businesses is the National Treasury’s expansion of the Employment Tax Incentive (ETI). These proposed changes are included in the Draft Disaster Management Tax Relief Bill and the Draft Disaster Management Tax Relief Administration Bill, 2020.
Although not yet final legislation, these draft Bills provide the necessary legislative amendments required to implement tax relief measures announced by the President. These tax relief measures are effective from 1 April 2020.
The ETI benefits apply to employees earning less than R6 500 a month and can be claimed by qualifying companies hiring anyone between the ages of 18 and 29 or employees of any age who are mainly employed in a special economic zone (SEZ) by an employer operating inside the SEZ. For the next four months (1 April to 31 July 2020) the ETI amounts are being increased and expanded to employees who would not usually qualify:
- During this period, the maximum ETI employers can claim is being increased from R1 000 to R1 500 for an employee’s first qualifying 12 months and from R500 to R1 000 in the employee’s second qualifying 12 months.
- Also during this limited timeframe, an ETI of R500 per month will be available for qualifying employees aged 18 to 29 who are no longer eligible because the employer has already claimed ETI for them for 24 months; and those aged 30 to 65 who are not eligible for the ETI due to their age. For qualifying employees in this category who earn R4 500 or more but less than R6 500, a reduced ETI amount will be claimable, based on a formula.
- Government is accelerating the payment of ETI reimbursements from twice a year to monthly as a means of getting cash into the hands of tax compliant employers as soon as possible.
In practice, an employer with ten qualifying employees earning R4 000 a month could, for example, benefit from an additional R5 000 of tax relief per month. This can free up some money to pay bills and keep the engine running at a time when many businesses are expected to experience cash flow challenges.
Note that the increased and expanded ETI is available to employers who were registered for employee tax on or before 1 March 2020. A qualifying employer will be allowed to defer 20% of the employees’ tax withheld or deducted for four months, without SARS imposing penalties and interest for the late payment thereof. Therefore, the PAYE payable for April (due on or before 7 May) can be reduced by 20% and only 80% will be payable. The same will apply for the following three months of May, June and July. The deferred PAYE liability must be repaid to SARS in six equal instalments, i.e. the first payment must be made on or before 7 September 2020. For the purpose of deferral of PAYE, a “qualifying employer” is defined in the draft Bill.
Employers who want to take advantage of these measures will need to be tax compliant. It is therefore important to ensure that all your VAT, PAYE and income tax filing and payments are up to date. Businesses can start by auditing their payroll to see how much relief they can claim under the expanded ETI. In addition, they must ensure their payroll software or formulas are updated to cater for the temporary change.
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