COVID-19: Department of Finance Updates

Service: Corporate, Mergers & Acquisitions, and Andersen Tax

A resource and link summary covering the South African Government Department of Finance's regulatory updates. Update: Essential financial services now include services required to comply with a tax act or to exercise a right afforded by a tax act.

Latest treasury regulations and directions in response to COVID-19

The recent COVID-19 national disaster is expected to have a significant effect on the economy as many business face liquidity issues. It is commonplace that South Africa was already experiencing an economic recession and with the national shutdown commencing, treasury has had to address valid economic concerns from various economic stakeholders. The Minister of Finance has responded by introducing various forms of tax relief measures and directions in line with the various trade restrictions imposed over the lockdown period.

We outline some of the relevant provisions as per the amended legislation and directives of the treasury below.

Donation Tax Deduction in Respect of Donations to COVID-19 Disaster Relief Trusts

The Draft Disaster Management Tax Relief Bill and the Draft Disaster Management Tax Relief Administration Bill released on 01 April were introduced with the purpose of relieving small to medium sized enterprises, as they are most likely to experience cash flow issues emanating from COVID-19 and the national lockdown. Although this is not explicit in the draft bill, the explanatory memorandum indicates that the COVID-19 trusts will be geared more towards assisting SMMEs.

As it stands, section 18A of the Income Tax Act provides for a tax deduction for the donor. This deduction allows the donor to deduct the amount of the qualifying donation, which is limited to 10% of the taxable income.

Donations made to the COVID-19 relief trust (COVID trusts) will qualify for a tax deduction in terms of section 18A, subject to the limitation of course.

Further, donations made by the donor will be exempt from donation tax. Accruals and receipts of the COVID-19 relief trust shall also be exempt from income tax. In circumstances where the COVID Trust is utilised towards settling employee allowances of SMMEs, the employer shall not be obliged to withhold PAYE. Instead, the employee shall pay income tax on the allowance upon assessment thereof. The proposed amendments will come into effect on 01 April 2020, until 31 July 2020.

It must be noted that if a COVID Trust has not been dissolved by 31 July 2020, the trust shall be recognised as a small funding entity as envisaged in section 30C of the Income Tax Act.

VAT Relief

Due to the measures put in place under the Disaster Management Act 57 of 2002, “essential goods” as defined in the relevant Regulation will be subject to a VAT exemption on importation during the COVID-19 pandemic. A full rebate of customs duty under the relevant rebate item of the Customs and Excise legislation is available where the approved the rebate for the goods concerned.

Transportation of Cargo During the Lockdown Period

The recent amendment of the lockdown regulations provides for the transportation of all goods across the borders in order to decrease congestion and advance the delivery of essential goods.

All cargo may be evacuated from ports of entry to their intended destination, on the following conditions:

  1. Cargo must be properly sanitised in a manner as prescribed by the relevant Government Department.

  2. Cargo must be cleared by customs and released prior to removal, or must be removed by an approved container operator on the basis of a manifest submitted to SARS.

  3. Cargo must be delivered to an approved or licensed temporary storage facility.

However once the goods have been moved from the port of entry to a storage facility, the physical delivery thereof to any consignee is subject to the restrictions imposed by the regulations in respect of essential services and goods for the duration of the lockdown.

Consequently, essential goods may be delivered from temporary storage facilities to consignees who perform essential services, subject to valid clearance. Non-essential goods are to be stored at temporary storage facilities, and may not be delivered for the duration of the lockdown. Those non-essential goods, which are stored during lockdown but have been cleared for customs retain their status in terms of the suspension of duty and VAT for the duration of the lockdown.

Our Tax Team offers more detailed insights around topics including Expansion of the Employee Tax Incentive Subsidy, Deferral of the Payment of Employees’ Tax Liability for SMEs and the Deferral of the Payment of Provisional Tax Liability for Tax Compliant SMEs which we can read about in our Trending in Tax 31 March Update.

For more information, please contact one of our attorneys.

Please follow the links below to the full regulations and directions.

Customs and Excise Act, 1964.Amendment of Schedule NO. 6 (26 March 2020)

Public Finance Management Act: Statement of National Revenue, Expenditure and Borrowings as at 29 February 2020 (30 March 2020)

Municipal Finance Management Act, 2003- Exemption from Act and Regulations (30 March 2020)

Public Finance Management Act: Exemption: Coronavirus COVID-19 National State of Disaster (30 March 2020)

Draft Disaster Management Tax Relief Administration Bill (31 March 2020)

Draft Disaster Management Tax Relief Bill (1 April 2020)

Amendment of Regulation 11(B)(1)(a)(iii) to the Disaster Management Act, 2002 (1 April 2020)

Definition of Essential Financial Services (4 May 2020)