ATC200914: Report of the Select Committee on Finance on the Disaster Management Tax Relief Administration Bill [B12B - 2020] (National Assembly- Section 75), dated 10 September 2020
[The following report replaces the Report of the Select Committee on Finance, which was published on page 2 of the Announcements, Tablings and Committee Reports dated, 11 September 2020]
Report of the Select Committee on Finance on the Disaster Management Tax Relief Administration Bill [B12B - 2020] (National Assembly- Section 75), dated 10 September 2020.
The Minister of Finance introduced the Disaster Management Tax Relief Administration (DMTRA) Bill during the tabling of the special adjustment budget on 24 June 2020. The Coronavirus 2019 (COVID-19) pandemic and the economic downturn has made it necessary for the Minister to table such a budget. The National Treasury (NT) indicated that the DMTRA or COVID-19 Tax Bill gives effect to the tax measures outlined by President Cyril Ramaphosa on 23 March 2020 and the tax announcements made by the Minister of Finance on 29 March 2020.
In terms of its consultation process, the NT and SARS published the first versions of the draft COVID-19 Tax Bills on 1 April 2020 for public comment. The first draft COVID-19 Tax Bills give effect to the COVID-19 tax measures that took effect on 1 April 2020 and apply for a limited period of four months, ending on 31 July 2020. On 23 April 2020 the NT and SARS briefed both the Standing Committee on Finance (SCoF) and Select Committee on Finance (SeCoF) on the COVID-19 tax measures that were included in the initial versions of the draft COVID-19 Tax Bills.
On 1 May 2020 the NT and SARS published for public comment the revised versions of the draft COVID-19 Tax Bills. The revised draft COVID-19 Tax Bills give effect to the further COVID-19 tax measures announced by the Minister of Finance on 21 April 2020 that took effect on 1 May 2020 and apply for a limited period of four months, ending on 31 August 2020. On 19 May 2020 the NT and SARS published the second revised draft DMTRA Bill and revised draft Notice on Expanding Access to Living Annuity Funds.
On 28 July 2020 the NT and SARS presented to both the SCoF and SeCoF the draft Response Document on the COVID-19 Tax Bills. On 18 August 2020, the SCoF considered the proposed changes by the Minister of Finance on the COVID-19 Tax Bills. On 19 August 2020, the SCoF voted on the COVID-19 Tax Bills. On 25 August 2020, the COVID-19 Tax Bills were debated and approved in the National Assembly. The DMTRA Bill is an ordinary Bill in terms of Section 75 of the Constitution, dealing with tax administration issues.
2.Disaster Management Tax Relief Administration Bill
The DMTRA Bill seeks to provide for tax measures in order to assist with alleviating cash flow burdens on tax compliant micro and small to medium sized businesses arising as a result of the COVID-19 pandemic and measures taken under the Disaster Management Act, 2002; to provide for the employees’ tax treatment of donations to the Solidarity Fund; to provide for a change in the value-added tax category of vendors to effect monthly returns and refunds; and to provide for matters connected therewith.
On the deferral of the payment of employees’ tax liability for tax compliant small to medium sized businesses, the Bill proposes that for a period of four months starting from 01 April 2020 to 31July 2020, tax compliant businesses can defer payment of 35 per cent of the employees’ tax liability, without SARS imposing administrative penalties and interest for the late payment thereof. The deferred Pay As You Earn (PAYE) liability must be paid to SARS in equal instalments over the six month period commencing on 1 August 2020.
In order to assist with alleviating cash flow burdens arising from the COVID-19 outbreak, the Bill proposes that, for a period of twelve months, beginning 1 April 2020 and ending on 31 March 2021, tax compliant businesses can defer a portion of the payment of the first and second provisional tax liability to SARS, without SARS imposing administrative penalties and interest for the late payment of the deferred amount. The first provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15 per cent of the estimated total tax liability, while the second provisional tax payment from 1 April 2020 to 31 March 2021 will be based on 65 per cent of the estimated total tax liability. Provisional taxpayers with deferred payments will be required to pay the full tax liability when the third provisional tax payment is due in order to avoid interest charges.
With regards to deferral of interim payment by micro businesses, the Bill provides relief provisions similar to those provided for provisional tax payments are proposed for micro businesses’ using the turnover tax system. The first interim payment is set at 15 per cent of the estimated total tax liability, while the second provisional tax payment is set at 65 per cent of the estimated total tax liability for the year. As micro businesses do not have a third provisional tax payment, the balance is payable on assessment.
On adjusting employees’ tax donations made through the employer, the existing legislation allows the employers to factor in donations of up to 5 per cent of the employee’s salary on a monthly basis for employees’ tax purposes. This limit will be increased, depending on the employee’s circumstances, for donations made to the Solidarity Fund. This will also lessen cash flow constraints for employees who donate to the Solidarity Fund.
The Bill makes provision for extension of time periods. It provides which time periods prescribed under tax Acts and the Customs and Excise Act are affected by the COVID-19 national lockdown period to the extent that relief is required. This relief does not extend to due dates or time periods for return filing or tax payments.
Lastly, the Bill seeks to fast track Value Added Tax (VAT) refunds by allowing vendors that are in a net refund position to elect to file monthly instead of once every two months, thereby unlocking the input tax refund faster, and immediately helping with cash flow. The proposed measures will be implemented for a limited period of four months starting from 1 April 2020 and ending on 31 July 2020.
3.The process followed by the Committee
On 14 July 2020, the NT and SARS briefed the SeCoF with the SCoF on the COVID-19 Tax Bills. The Minister of Finance tabled these Bills on 24 June 2020 in Parliament. On 22 July 2020 the SCoF convened public hearings on the COVID-19 Tax Bills, with the presence of SeCOF.
On 28 July 2020 the NT and SARS presented to the SCoF and SeCoF the draft Response Document on the COVID-19 Tax Bills. On 30 August 2020, the National Council of Provinces (NCOP) officially referred the Disaster Management Tax Relief Administration Bill [B12B - 2020] (National Assembly- Section 75) to the SeCoF for consideration and report.
The SeCoF received a second briefing on the Bills by the NT and SARS on 02 September 2020. The Committee advertised the Bill for comments but received no submissions. On 09 September 2020, the Committee deliberated on the Bill clause by clause.
4.Amendments to the DTMRA Bill
During the briefing to the Committee on 01 September 2020, the NT reported changes made to the DTMRA Bill in respect of the deferral of the payment of employees’ tax liability for tax compliant small to medium sized businesses.
The revised DTMRA extends the four-month period from 1 April 2020 to 31 July 2020 of the tax relief permitting tax compliant small to medium sized businesses to defer payment of 35 per cent of the employees’ tax they have deducted from their employees by one month to five months. As a result of this extension, 35 per cent may also be deferred for August 2020 and repayments of the deferred tax will now only begin in October 2020 and run through until March 2021.
5.Committee observations and recommendations
5.1The Committee welcomes the amendments to the Bill, which include changing the definition of “qualifying taxpayer”, deferral of the payment of employees’ tax liability and deferral of the payment of provisional tax and interim payments liability for tax compliant small to medium sized businesses, taking donations to Solidarity Fund into account for employees’ tax purposes, earlier VAT refunds for taxpayers and extension of time periods.
5.2The Committee acknowledges the difficulties being experienced by SARS’s in these challenging COVID-19 times and noted its report on what it is doing to overcome these, especially through the use of innovative technologies, including on the simplification of the processing of tax returns for taxpayers. The Committee welcomes this and encourages SARS to make further progress on this. The Committee will monitor progress on this.
5.3The Committee noted the assurances from NT that the relief measures in this bill are a first response and there may be further measures should there be a demonstrable need. NT has undertaken to monitor the situation closely and respond with reasonable measures, keeping the fiscal imperatives in mind with due regard to the taxpayer. NT said that the bills cover “blanket” relief measures and where compelling individual circumstances exist for further extensions, deferrals or other relief exist, that application could be made to SARS for such relaxation in specific circumstances.
5.4We welcome the assurance made by the NT that many other measures and some concerns raised by the Committee, including access to retirement linked investments, would be covered in the Taxation Laws Amendment Bills which will be introduced during the 2020 Medium-Term Budget Policy Statement.
The Select Committee on Finance, having considered and examined the Disaster Management Tax Relief Administration Bill [B12B - 2020] (National Assembly- section 75), referred to it, and classified by the JTM as a Section 75 Bill, accepts the Bill with amendments [B12B - 2020].
Report to be considered
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