Covid Advisory: Update on new relief measures and South Africa’s economic recovery plan

22 April 2020 128
Did you know that on 21 April 2020 the President announced an economic recovery plan and several new relief measures in order to assist South African businesses in the wake of the COVID-19 pandemic and nationwide lockdown?

In our previous advisory communications we have discussed the various tax and debt relief measures that have been made available by the government, as well as financial assistance contributed by the private sector, aimed at aiding South African businesses that are struggling financially as a result of the COVID-19 pandemic, the nationwide lockdown and the reigning economic recession.

On 21 April 2020 President Cyril Ramaphosa addressed the nation and discussed the COVID-19 economic recovery plan for South Africa, which includes various additional, new and amended measures for and avenues of relief for businesses. This recovery plan consists of three phases:

Phase 1

The first phase commenced when the COVID-19 pandemic was declared as a national disaster in March 2020. This phase saw the introduction of various tax relief measures, wage assistance via a special UIF programme, the availability of disaster relief funds, and funding to small and medium sized businesses (“SME”). These aspects have been independently considered in our previous communications.

Phase 2

The second phase commenced on 21 April 2020 with the President’s address. This phase of the plan is aimed at stabilizing the economy, and involves the introduction of a social relief and economic support package of R500 billion, which amounts to around 10% of the country’s GDP.

The following considerations may be highlighted to summarize the key aspects that businesses should take note of and which may offer relief:

  • Loan guarantee scheme
    • A R200 billion loan guarantee scheme has been announced by government, in partnership with the major banks, the National Treasury and the South African Reserve Bank.
    • This loan scheme has been designed to assist businesses with operational costs, including the payment of employee salaries, rent and the payment of suppliers.
    • In the initial phase of this scheme, companies with a turnover of less than R300 million a year will be eligible to apply for assistance.
    • It has also been confirmed that a number of the banks that are party to this scheme are ready to roll out the product before the end of April 2020, although details regarding these banks and the application process is not yet apparent.
    • The President indicated that it is expected that this scheme will support over 700,000 businesses and more than 3 million employees during this time.
  • Tax relief measures
    • A four month tax holiday for companies’ skills development levy contributions will be introduced. Specific details regarding this relief measure are not yet clear.
    • There will be fast-tracking in respect of VAT refunds to businesses.
    • The introduction of a three month delay for filing and first payment of carbon tax.
    • As indicated in our previous newsletter regarding this topic, the government previously indicated that certain tax compliant businesses were eligible to defer a portion of their PAYE liabilities. This position has now been enhanced in order to assist a greater number of businesses. The previous turnover threshold for tax deferrals has been increased to R100 million a year, and the portion of PAYE liability that may be deferred has been increased to 35%. For more information on how this deferment process works, please refer to our advisory communication dated 06 April 2020.
    • Businesses with a turnover of more than R100 million a year are eligible to apply directly to SARS, on a case-by-case basis, for deferrals of their tax payments. It should be noted that no penalties for late payments will be applicable if businesses can demonstrate that they have been materially negatively impacted as a result of the COVID-19 pandemic and the nationwide lockdown.
    • Government estimates that in total, these tax measures should provide at least R70 billion in cash flow relief or direct payments to businesses and individuals.
    • It is also important to note that taxpayers who donate to the Solidarity Fund will be eligible to claim up to an additional 10% (therefore a total of 20%) as a deduction from their taxable income. See our previous advisory communication dated 15 April 2020.
  • Wage support and the UIF
    • As discussed in our previous advisory communications on 02 April 2020 and 16 April 2020, government has introduced the Temporary Employer-Employee Relief Scheme (COVID19TERS) to assist employees who have been affected by a loss of income due to the COVID-19 pandemic and the nationwide lockdown.
    • R40 billion was originally set aside for this purpose during phase 1, and an additional R40 billion has been set aside for this purpose during phase 2 of the economic recovery plan. Please see our previous communications for details regarding the application process.
  • Other noteworthy measures
    • R100 billion will be set aside for protection of jobs and to create jobs.
    • While funding of R100 million was previously made available for this purpose, an additional amount of R2 billion will be made available to assist SMEs and spaza shop owners and other small businesses.
It may be noted that various health and social relief measures (such as grants and funding to assist the poor and needy) also form part of the relief package introduced for this phase.

Phase 3
The third phase of the economic relief plan will involve the implementation of various measures to drive the recovery of the South African economy, as the country emerges from the COVID-19 pandemic. Further details of this phase will be made available to the public in due course.

The way forward

To date, government has approached the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank for assistance and these institutions are working with the National Treasury on various funding transactions. Some of these institutions have created financing packages that are aimed at assisting countries that are having to address the coronavirus crisis, such as South Africa. Further relief and funding options may therefore be on the horizon.

Further details regarding phase 2 and its measures should become clearer and more certain over the next week or two.

For the moment and at the time of publication, this is the information we have obtained. We will keep you updated should any further relevant information come to our attention.

Although we have used our best efforts to ensure that all information contained in this communication is accurate as at the date hereof, we cannot guarantee the accuracy thereof and recommend verification thereof before use.