Dear all,
If you are anything like me you will find that time seems to have taken on different meaning. For someone who is ruled by deadlines, meeting times and due dates it’s all a bit surreal. This was especially highlighted to me yesterday as I was wondering why my office were ignoring my nagging until I discovered it was a Public Holiday. To say ‘Happy Freedom Day’, is a bit of irony, seeing as we are mostly still sequestered to our homes.
I have been holding off writing an update as I have been hoping that I would be able to speak on new opportunities and initiatives with some authority but alas the information available is still mired in supposition and double speak. I will attempt to try and bring some perspective to it all.
President Ramaphosa made two important addresses to the nation last week, the first being to address the country’s fiscal concerns whilst the second was to brief us on the phased approach towards a life of normality. With my commentary being confined to the commercial aspect of lockdown I will dwell on mostly what came out of the former.
The address made on 21 May 2020 made many sweeping promises, legislation to support this appears to be only making itself available in draft form on 30 April 2020 and the most information on the tax side of things which I have found I have pulled from a media statement issued by National Treasury a day or two after the speech.
So what can we expect to see amended based upon the speech? (I am keeping this limited to that which affects us as mere mortals, much looks impressive but wouldn’t apply to 99.9% of business in the country).
- From 01 May there will be a 4 month holiday on Skills Development Levies paid by all businesses. For many the amount is small, for others, it can be tangible. As they use the word ‘holiday’ one must assume they will not try and claw it back later, but anything is possible.
- They are ‘fast tracking’ VAT refunds. At face value this is making a virtue from necessity as SARS have a legal obligation to pay these refunds promptly yet most of us have seen what happens in practice. What they are doing is quite significant however, they are allowing businesses with input claims to revert to a monthly return for that particular claim period. As many businesses have no top line income this cash flow acceleration may be welcome. SARS are ‘working towards’ being able to implement this for Category A vendors who would normally file in June, to be able to file a month early. Practically this raises quite a few questions in my head but will let this lie until SARS give us formal guidelines.
- On a technical side the initial budget had two very nasty little tax amendments which did little to excite us. The first was trying to limit interest deductions to 30% of Gross Income and the second was only allowing 80% of an assessed loss to be used in any one particular year of assessment. These were supposed to come into effect on 01 January 2021. In the spirit of COVID this has been extended to 01 January 2022 which is good news for our tax planning.
- The PAYE deferral amount has been increased from 20% to 35%, to be deferred for 4 months ended 31 July. This obviously has very little effect on businesses not operating as one must assume that those businesses’ payrolls will be virtually nil for the period of stage 5 lockdown. If you are however fortunate to be running at full capacity due to being an essential service provider this may have a positive effect on your cashflow. In real terms this provision does little to assist businesses suffering under extended lockdown but, hey, take anything on offer at the moment folk.
- Lastly, and probably one of the issues concerning businesses the most, is that of being able to make their submissions of VAT and the like by the due dates. In many cases where businesses are closed, they have no accounting departments to actually do the work to enable the submission. We reached out to our professional societies for guidance. The answer from the South African Institute of Tax Professional finally came back to us and told us that “you should make the best estimate that you can and submit your return”. I have a problem with this as it means you are being encouraged to make a false statement which may well haunt you later when being savaged by an overzealous Vat Auditor. We have to assume that if it can be proven you were unable to meet a tax deadline due to the effect of lockdown late submission penalties must be waived. I assume if it can be demonstrated that you have rectified the problem as soon as you are able it would be poor form for them to pursue punitive charges. This however is purely my logic and not as yet supported by any law or ruling.
- More interesting is a rather vague statement that says ‘Case by Case waiving of penalties and interest by SARS’. The statement goes on to basically say that if you can prove you have been adversely affected by COVID you can apply for a deferred payment plan for a tax without incurring penalty. Whilst the spirit of this magnanimous gesture is awesome, anyone who has been in business for any length of time will know that anything left to the discretion of SARS generally ends in tears. This may be useful for VAT but the principle of the fact that paying most taxes presupposes a profit, and if you are making a profit it’s difficult to justify how you may be financially unable to pay the tax. Let’s just say that we will keep an eye on this one to see if it can be considered pure lip service or not. Further to this we are concerned that while SARS ponders your request for deferral you will not
be tax clear, which will cause the ETI to not be claimable on your EMP201 return and most COVID Relief schemes require tax clearance.
I must just repeat that this is all proposed legislation, quite how it changes in its final implementation, remains to be seen.
In addition to the tax deferrals the speech in question saw him throwing around figures that looked like telephone numbers and had him merrily slicing up R500 Billion and throwing it around like a rather strange incarnation of Santa Clause. It is difficult to see where he got this, or in fact whether he has it all currently available. Regardless, a large portion is obviously going towards social grants and the frontline costs of the COVID war but he made a sweeping statement that R200 Billion was being made available to assist 70 000 SMME’s in an initiative being controlled by the banks. I have been waiting for information on this which has not been forthcoming.
A client of the firm showed me a letter from Investec Bank offering them financial assistance which, whilst a lovely gesture, was far from philanthropic. It was offering a loan which was interest free for 12 months but converted to a loan on normal terms and conditions when the upfront period passed. In addition their list of requirements was fairly onerous and I battled to see the distinction between this and any other conventional loan application.
My only other point of reference was a business Shireen came across, whose name was unknown to me, offering a similar sounding type of deal. Most worrying is they sounded more like loan sharks than a conventional bank and the mind boggles if they are being granted access to this supposed ‘angel’ fund.
I have emailed our banker from FNB and wait to see if he has anything further to share, until then, we just wait and see.
So in summary, the Ters fund is paying out nicely and is of invaluable assistance. We have had a few approvals from the South African Future Trust as well as a few declined. We have a massive amount of people registered for debt relief from the Solidarity fund and despite the vague references we have to this fund being put in place to cover Rental and Utilities, are unable to proceed with any applications as we still wait for registration approval. We are chasing as hard as we can yet we are plagued with calls unanswered, full voicemail boxes and the like. The rental war is hotting up with Landlords who demand their full rental being vilified as COVID nasties who are not embracing the spirit of Ubuntu (News24 words
not mine). Through extensive discussions with my clients I estimate that around 90% of landlords are making rental concessions with most ranging from 0 to 50% of rentals due.
Everyone will probably be familiar by now with the phased approach of Lockdown relaxation. Whilst we have guidelines, once again, much needs to be confirmed still by the legislature. I also note that our Premier The Honourable Sihle Zikalala, is debating whether to ‘allow’ KZN to go to stage 4. Quite what gives him the right to go against central government and their panel of experts is anyone’s guess but what will come of it is unclear as at the time of writing.
Whilst many businesses will be able to start a form of operation in the next week or so, equally as many look destined to be closed until we reach the holy grail of stage 1, or stage 0. The time period for this is anyone’s guess.
If your business is totally shutdown under lockdown rules you basically need to mothball it if you expect to re-emerge post COVID. By this I mean, shut off all forms of cash outflow, cancel everything that you can, take assistance from whoever is offering and spend your time planning your businesses comeback. I know that is easier said than done but if you are allowing your non-operational business to drain your funds for an indefinite period of time you are probably throwing good money after bad. A bitter pill to be sure but your options are currently seriously curtailed. I suggest getting hold of us if you need to discuss this further. Inevitably one always has options as long as one is proactive and forward thinking. Sticking your head in the ground is unlikely to yield any positive results in the scenario we find ourselves in.
When writing these I feel a bit like the Grim Reaper as it seems I seldom have anything too positive to report. We are mostly all in this boat together and we are monitoring the airwaves daily on your behalf looking for any way we can to help everyone through this period. I am going to repeat myself and say, if you have not yet done a 12 month cash flow projection, you need to as a priority. You cannot hope to navigate your business through this storm without a map, the cash flow is your map and is a dynamic tool which all business owners need to have. Much of the assistance going forward will be wanting us to prove the loss incurred due to COVID and once again, this document will be most helpful if required.
In addition to this you may well get bugged by Minesh or Derane with regards the 2020 work, and whilst this is probably far away from your thoughts, to be up to date will certainly put you in a more powerful position when trying to pry assistance from Government. From our side we are trying to make sure that our clients are in the best possible position to access whatever needs to be accessed to ensure commercial survival. Please work with us where you can on this.
In our new world of pineapples, home cooked food and wishing we had bigger gardens, we are all grappling with change.
Change is very often the catalyst for success in a business which is overlooked as we are caught up in the daily grind. Take this time of relative solitude to focus on your business and start putting in place the blueprint as to how your business will have changed post COVID as well as an action plan to begin acting upon as soon as legislation allows. This will also enable you to focus on the positive without being dragged down by the negative which currently shrouds us.
As always I thank all the people who have helped our research by sending us articles, snippets and anecdotes, as in this time of information overload it is invaluable to us to get a handle on what is happening on the ground.
All always, stay safe, stay healthy and stay COVID Free
Chris, Shireen and the MRM Team
