The private sector and its employees stand to receive a significant share of the government’s R500 billion Covid-19 economic stimulus and social relief package, announced by President Cyril Ramaphosa in his latest address to the nation on Tuesday night.
Among the most noteworthy new measures to help mitigate the economic, social and healthcare fallout of the global coronavirus pandemic on the country, is a R200 billion loan scheme to assist affected medium and smaller businesses in paying out salaries and other expenses.
The president said the new scheme would be targeted at companies with turnovers of less than R300 million a year. He noted that while measures already announced by government are providing obvious relief to many companies and workers, it is “clear that there is a far greater need” across the entire economy.
“We will therefore be introducing a R200 billion loan guarantee scheme in partnership with the major banks, the National Treasury and the South African Reserve Bank,” said Ramaphosa.
“This will assist enterprises with operational costs, such as salaries, rent and the payment of suppliers. In the initial phase, companies with a turnover of less than R300 million a year will be eligible,” he explained.
“It is expected that the scheme will support over 700 000 firms and more than three million employees through this difficult period. A number of the banks are ready to roll out the product before the end of the month,” he added.
Meanwhile, Ramaphosa announced the introduction of further tax relief measures to support businesses. These include:
- A four-month holiday for companies’ skills development levy contributions
- Further fast-tracking of VAT refunds; and,
- A three-month delay for filing and first payment of carbon tax.
“To assist a greater number of businesses, the previous turnover threshold for tax deferrals is being increased to R100 million a year, and the proportion of PAYE payment that can be deferred will be increased to 35%,” he added.
“Businesses with a turnover of more than R100 million a year can apply directly to Sars on a case-by-case basis for deferrals of their tax payments. No penalties for late payments will be applicable if they can show they have been materially negatively impacted in this period.”
In addition, the president said that taxpayers who donate to the government’s Solidarity Fund Covid-19 social response initiative will be able to claim up to an additional 10% as a deduction from their taxable income.
He said that in total the tax measures (mentioned above) should provide at least R70 billion in cashflow relief or direct payments to businesses and individuals.
As the Covid-19 pandemic takes a worsening toll on the local economy, Ramaphosa described the scale of government’s emergency relief package as historic.
“It demonstrates that we will not spare any effort, or any expense, in our determination to support our people and protect them from harm. We will – and we must – do whatever it takes to recover from this human, social and economic crisis,” he said.
The president pointed out that the R500 billion overall relief package announced on Tuesday night, represents the “second phase” of government’s economic response to the pandemic and economic fallout. He said the support package amounts to around 10% of SA’s GDP.
“The impact of the coronavirus requires an extraordinary coronavirus budget – of around R500 billion – to direct resources towards fighting the pandemic. This includes the reprioritisation of around R130 billion within the current budget. The rest of the funds will be raised from both local sources, such as the Unemployment Insurance Fund, and from global partners and international finance institutions.
“To date, the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank have been approached and 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 like us,” he added.
Finance Minister Tito Mboweni is expected to give more detail on several of the new economic stimulus and relief measures announced by Ramaphosa.