Donations made to the Solidarity Fund
The deduction available for donations increased.
To alleviate the cashflow difficulties of employees where their employers contribute to the Solidarity Fund on their behalf, Government is proposing a special relief measure by temporarily increasing the current 5% tax limit in the calculation of monthly PAYE of the employee. An additional limit of up to a maximum of 33.3% for three months or 16.66% for six months, depending on an employee’s circumstances, will be available.
This will ensure that the employee gets the deduction that is in excess of 5% much earlier than under normal circumstances and will therefore not have to wait until final assessment to claim a potential refund, provided the donation is made to the Solidarity Fund. It is, however, important to note that a final determination must still be made upon assessment as the employee may have other income, deductions or losses that impact the final taxable income before the deduction of donations.
Adjusting PAYE for donations made through the Employer:
- In order to encourage South Africans to make contributions to the Solidarity Fund in line with the President’s call to action, it is proposed that the tax-deductible limit for donations, currently 10% of taxable income, be increased to 20% in respect of donations in cash or of property in kind donated and actually paid or transferred to the Solidarity Fund at the end of the year of assessment of the donor to the Solidarity Fund during the 2020/21 tax year. There will, thus, be a limit of 10% for any qualifying donations (including donations to the Solidarity Fund in excess of its specific limit) and an additional 10% for donations to the Solidarity Fund
- The 20% tax-deductible limit for donations will apply only to donations made during the 2020/2021 tax year. Any donations over the limit made during the 2020/2021 tax year will be carried forward and deemed to be a donation made in the succeeding year of assessment (2021/2022) and be subject to the 10 per cent limitation in that year
Should have any queries with regard to the above please do not hesitate to contact us for professional advice.
IMF Executive Board Approves US$4.3 Billion Loan
The IMF Executive Board has approved South Africa’s request for emergency financial support under the Rapid Financing Instrument (RFI) for an amount of US$4.3 billion to help the country mitigate the adverse social and economic impact of the Covid-19 pandemic.
The additional IMF funding is a low interest loan that contributes to government’s fiscal relief package while respecting South Africa’s decisions on how best to provide relief to the economy and those worst affected by the current crisis.
It will also pave the way for government to provide the necessary financial relief required to forge a new economy and mitigate further harm to the economy. The country has been hard hit by the pandemic, and this required government to come up with fiscal and monetary measures that would respond to the struggling economy and contain its negative effects to society. The Minister of Finance, Mr Tito Mboweni, presented a Special Adjustments Budget in Parliament on 24 June 2020 as part of government’s key interventions to the Covid-19 pandemic.
Public spending priorities and budgets are being re-ordered and reprioritised towards Covid-19 related interventions and economic recovery efforts. The relief package will:
- Support health and frontline services
- Protect the most vulnerable
- Drive job creation
- Unlock economic growth through reforms
- Stabilise public debt
Government spending and tax proposals, as well as the loan guarantee scheme and wage protection measures, are providing protection to workers and the poor, while assisting firms to stay afloat during these tough economic times.
Reserve Bank Economic Outlook
Since the May meeting of the Monetary Policy Committee (MPC), the Covid-19 pandemic continues to spread globally, with wide-ranging and deep social and economic effects. Current forecasts from the IMF show global Gross Domestic Product (GDP) contracting by about 4.9% this year.
The deepest contractions are expected in the second quarter of 2020, with gradual recoveries in the third and fourth quarters of the year. The strength of the global economic recovery will depend in part expectations of future growth in investment and productivity.
The crisis has caused extreme volatility in financial asset prices with sharp and deep market sell-offs followed by a partial recovery. Investor appetite has generally improved, reflected in a weaker USD and stronger capital flows to emerging markets. The general environment continues to reflect pronounced levels of risk aversion, however, due to uncertainty about future global economic prospects. The Covid-19 outbreak has major health, social and economic impacts, presenting challenges in forecasting domestic and global economic activity. The compilation of accurate economic statistics will also remain severely challenged.
Easing of the lockdown has supported growth in recent weeks and high frequency activity indicators show a pickup in spending from extremely low levels. However, getting back to pre-pandemic activity levels will take time. GDP is expected to grow by 3.7% in 2021 and by 2.8% in 2022. The overall risks to the inflation outlook at this time appear to be balanced. Global producer price and food inflation appear to have bottomed out. Local food price inflation is expected to stay contained. Risks to inflation from currency depreciation are expected to be muted while pass-through remains low. However, electricity and other administered prices continue to be a concern. Upside risks to inflation could also emerge from heightened fiscal risks and sharp reductions in the supply of goods and services.
Expectations of future inflation continued to soften for this year but are broadly stable around the mid-point of the target band for 2021. Market-based expectations for short and medium-term inflation have eased slightly, while long-term inflation expectations are higher.
Global economic and financial conditions are expected to remain volatile for the foreseeable future. In this highly uncertain environment, future decisions will continue to be data dependent and sensitive to the balance of risks to the outlook.
Business for South Africa (B4SA) – A plan to Kick-start Growth Inclusive Economic Growth
When Covid-19 arrived in the country at the beginning of March 2020, it was evident from the experience of other countries that this would have significant health, economic and social ramifications for South Africa.
Government, fully supported by business and other societal stakeholders, took swift action and the resulting lock-down provided time to prepare the health care system for patient volumes which it was ill-equipped to handle, and to slow the spread of the virus.
Today, it is clear that the virus will continue to circulate through the population, with infection rates increasing significantly across the nation. We therefore need to develop protocols and mechanisms which allow the country to operate under these difficult conditions, carefully balancing health and safety considerations with the need for protecting livelihoods and ensuring economic growth.
The domestic economy was already in a precarious position prior to the advent of the Covid-19 crisis, which has merely exacerbated the economic and social consequences of corruption and the poor choices made over the last decade. South Africa has fallen behind its African and global competitors, as the country has failed to address its primary challenges of inequality, poverty, and unemployment.
In recognition of the gravity of the present situation, B4SA was constituted to mobilise business’ capabilities in response to the Covid-19 crisis and to assist government in addressing the associated ramifications for the economy and society at large. Secondly, B4SA sought to formulate an integrated accelerated economic recovery strategy which harnesses South Africa’s potential in the shortest possible time by leveraging all resources – across government, business, and civil society – to address the economic challenges we face.
B4SA has synthesised and prioritised 12 key projects and initiatives, from a list of over 50, some of which can be launched immediately and others progressively, across 10 high-impact sectors. There have also been 12 policy focus areas identified, which could increase GDP by over R1 trillion (tn), generate 1.5 million (m) jobs, and increase tax revenues by R100 billion (bn) per annum. In addition, 15 immediate actions have been identified that will improve consumer and business confidence and that do not require government policy changes to implement. We need decisive leadership together with appropriate capacity and expertise, to implement these actions.
To see more how B4SA is working to help the business sector, download the following presentation:
- https://www.businessforsa.org/wp-content/uploads/2020/07/B4SA-A-New-Inclusive-Economic-Future-for-South-Africa-narrative-10-July-Final.pdf; Or
- Visit their website at: https://www.businessforsa.org/