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The Tax Impact of COVID-19 on the Employer

We are living in exceptional times. The COVID-19 chapter in the 2020 history book will certainly have an economic and social impact for perhaps years to come.

Employers especially, have had to navigate how to pro-actively create a remote workforce in the current climate, not to mention facing immense financial challenges.

The South African Revenue Service (SARS) have not been blind to the challenges employers are facing and, seeing as employee cost is the largest expense for most taxpayers, this comes as a welcome respite for employers who do not want to sacrifice their tax compliance.

Currently, the available tax relief only applies to qualifying employers. A qualifying employer is an employer who:

  • Is an individual, trust, company, partnership, close corporation, share-block or co-operative who operates a trade; and
  • Has a gross income of R100 million or less or is a qualifying micro-business as set out in the Sixth Schedule of the Income Tax Act; and

(Gross Income must not include income totaling more than 20% consisting of interest, dividends, rental income from the letting of fixed property (unless this is the entity’s main trade and makes up at least 90% of gross income), and royalties)

  • Is fully tax compliant.

The following reliefs are amongst those that are available to employers during the South African lock-down period as at the date of publication:

  1. A 35% deferral of the employer’s Pay-As-You-Earn (PAYE) obligation from April to July 2020. It is important to note that this amount will have to be repaid in six-monthly installments from August 2020 to January 2021. Employers must still declare the full amount of PAYE payable within their EMP201s. SARS will apply the deferral amount on the statement of account.
  2. A Skills Development Levy (SDL) payment holiday from May to August 2020. This payment relief will be automatically applied and will not have to be repaid.
  3. An Employee Tax Incentive (ETI) relief from April to July 2020. An additional amount of up to R750 can be applied for each employee earning less than R6 500 per month. This relief will only be applied to employers who are currently ETI qualifying employers.

Employers must make full use of these measures in the time that they remain available, as we do not know how long the Corona-virus will be a part of the new normal we are facing.

For any assistance in this regard, please do not hesitate to contact us at Tax@rain.org.za.