On 21st April 2020 President Ramaphosa announced additional measures to assist employers to provide financial stability to their employees. One of these measures includes a 35% deferral on the monthly PAYE liability owed to SARS for the months of April, May, June and July.
To qualify for the COVID-19 Tax Relief for PAYE, employers, excluding Government or Municipality departments, must:
Be either an:
Have a gross income of R100 million or less during the year of assessment ending on or after 1 April 2020, but before 1 April 2021; AND
While South Africa is currently in a state of lockdown during which a significant number of businesses have had to cease operations, some relief from a tax perspective has been announced by the government. Tax-compliant businesses with a turnover of less than R50 million will be allowed to defer (importantly, not have waived) 20% of their pay-as-you-earn liabilities over the next four months, and a portion of their provisional corporate income tax payments, without penalties or interest over the next six months.
There is, however, a legal and practical difficulty in the proposed relief.
While President Ramaphosa and his Cabinet have alluded to these relief mechanisms, they remain part of the Executive arm of Government. They cannot make law and amendments thereto; that is a function and privilege of the Legislature (Parliament). Without such relief mechanisms being legislated, SARS must impose penalties and interest on late- or short payments in line with existing legislation. It is highly unlikely that Parliament will be convened to make amendments to tax acts to accommodate for the relief. So, what can be done?
SARS can, through a so-called “practise generally prevailing” set-out their application of a tax act. Such a “practise generally prevailing” should be contained in an official SARS publication, which includes a Practise Note. It could, therefore, be considered that SARS issues a Practice Note to indicate how they will apply specific provisions which impose penalties and interest in certain instances. Although not yet tested in law, it is one of the options that could be considered to attach legal consequences to the relief mechanisms which have been proposed. It will be interesting to see what SARS decides to do in this case.
Persons who deal with compliance related matters will be well aware that penalties and interest are imposed automatically on statements of account when payments are submitted late, or short payments are made. Systems trigger these penalties and interest. Even though SARS’s eFiling system is one of the best electronic filing systems globally, it is unlikely that changes will be made thereto on such short notice.
Unless there is manual intervention from a SARS official, taxpayers who make use of the relief mechanisms, will automatically find themselves in a dispute process. Even though they are fully entitled to the relief (on the assumption that the relief gets properly legislated as indicated above), they will have to go through the process to have penalties and interest remitted.
We suggest, that before any of the relief mechanisms are utilised, taxpayers consult with advisors to ensure that firstly, the relief is legally available, and secondly, how they must manage the dispute process.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)