Additional COVID-19 tax relief: Skills development levy, carbon tax and employment tax incentive

In addition to proposing an expansion of the scope of the provisional tax relief and employees’ tax relief that was originally announced, on 21 April the President announced, amongst other things, that there would be relief from skills development levy contributions and the payment of carbon tax. This was confirmed in the subsequent media statement issued by National Treasury on 23 April (Media Statement).

Skills Development Levy: A four-month payment holiday for employers

The skills development levy introduced on 1 April 2000 by the Skills Development Levies Act 9 of 1999 (Levies Act), is a levy imposed to encourage learning and development. The purpose of the compulsory scheme is to fund education and training.

In terms of section 3 of the Levies Act, every employer must pay skills development levies (SDL) from April 2000 at a rate of 0.5% of the leviable amount and at a rate of 1% from 1 April 2001. The leviable amount is the total amount of remuneration paid or payable or deemed to be paid or payable by an employer to its employees during any month as determined in accordance with the provisions of the Fourth Schedule to the Income Tax Act 58 of 1962.

The SDL contribution is determined on the balance of remuneration after the deduction of all allowable deductions. The SDL contribution must be paid out to the South African Revenue Service (SARS) within 7 days after the end of the month in respect of which the levy is payable or within such longer period as the Commissioner determines.

On Tuesday 21 April 2020, in addition to the proposed tax relief measures contained in the Draft Tax Relief Admin Bill and the 2020 Draft Disaster Management Tax Relief Bill (Draft Tax Relief Bill), the President announced the introduction of a four-month payment holiday for companies’ skills development levy contributions.

In the Media Statement, National Treasury indicated that the four-month payment holiday would begin on 1 May 2020. The Media Statement also indicated that further details will be contained in the draft bills alongside their draft explanatory memoranda due to be published by 30 April 2020. The draft bills and explanatory memoranda will shed light on the meaning of the payment holiday and whether the SDL contribution by companies will be deferred as is the case for the employees’ tax liability and the tax liability of provisional taxpayers.

Carbon Tax: Three-month deferral for filling and first payment of carbon tax liability

Carbon tax was introduced on 1 June 2019 by the Carbon Tax Act 15 of 2019 (CT Act), in response to climate change and is aimed at reducing greenhouse gas emissions. The tax is imposed on the carbon dioxide equivalent of greenhouse gas emissions where certain thresholds are exceeded. Persons liable to pay carbon tax are entities that operate emission generating facilities in the Republic.

In terms of section 1 of the CT Act, a taxpayer must pay the carbon tax for every tax period which commences on 1 January of each year and ends on 31 December of that year. The carbon tax is due on 31 July of the following year. Currently, the first tax period for which carbon tax must be paid, is for the period 1 June 2019 to 31 December 2019.

The President announced a three-month delay for filing the first payment of carbon tax. The Media Statement states that in order to provide the taxpayer with additional time to complete the first return, as well as cash flow relief in the short term, the filing requirement and the first carbon tax payment which is due by 31 July 2020 will be delayed to 31 October 2020.

Increase in the employment tax incentive

In our Tax & Exchange Control Alert of 3 April 2020 we discussed the first set of tax measures introduced by the Draft Tax Relief Bill which proposed that the employment tax incentive (ETI) programme be expanded to include employees that were ineligible to be qualifying employees because of their age and to also include employees in respect of whom the employer has already claimed the ETI for a period of 24 months.

The expanded ETI practically means that for four months, starting from 1 April 2020, an employer can claim R500 in respect of employees that were previously not qualifying employees because of their age and also in cases where the employer has exhausted the ETI claims in respect of a qualifying employee. Where the employer already claimed the ETI in respect of an employee whether in the first or second year of employment, the employer can claim an additional R500.

The Media Statement states that there will be an increase in the expanded employment tax incentive amount announced in the first set of tax measures which provided for a wage subsidy of up to R500 per month for each employee that earns less than R6,500 per month. This amount will be increased to R750 per month.