By Jessica Grobler – Associate, Tax and Exchange Control; and Naledi Mdingi – Candidate Attorney, Tax and Exchange Control, from international corporate law firm CMS South Africa
It goes without saying that the prolonged blackouts and the increasing intensity of the loadshedding stages have left many businesses in South Africa with battered budgets.
However, businesses are not the only ones experiencing the pinch as a result of the blackouts. South African citizens have also found themselves under financial strain due to the inconvenience and the increased expenditure required to accommodate these blackouts. Consumers are installing gas stove tops, solar panels, generators, UPS devices and buying batteries, candles and Uber Eats or take-aways, all of which require additional spending.
Citizens today must pay more to keep the lights on. When considering the cost of practical solutions to this end, we cannot ignore the additional associated costs. This only exacerbates an already depressed household income, and it now raises the question as to whether there are currently any tax relief measures available for individuals. And, if not, whether there are any tax mitigation measures that the government can implement to cushion the massive blow that has hit South African citizens.
Businesses in South Africa are able to claim for most of the expenses incurred to alleviate loadshedding consequences as tax deductible business expenses in determining their tax liability when submitting returns to the SARS. These are expenses which are incurred in the operation of a business, and they relate to purchases which are made for the purpose of running a business. These expenses range from the purchase and running costs of generators and solar panels purchased to keep the machinery operational, UPS devices purchased to ensure that employees are able to work, surge protection devices purchased to ensure that electrical circuits and/or appliances do not get damaged, water heaters purchased to ensure that business premises have access to warm water, and battery powered LED lightning and smart LED lights purchased to keep the lights on.
The government during the Finance Minister’s Budget Speech last month announced a new tax rebate which will introduce a year-long incentive programme for households that invest in solar. This means that for a year, households can claim 20% of the cost of new and unused solar photovoltaic panels up to the maximum of R15 000. However, will this be enough? Also, why are individual taxpayers not also able to claim deductions or tax credits for the money they spend on generators, gas tops, fuel, water heaters and LED lights, when it’s time to complete tax returns?
The concept is provided for in the Income Tax Act already, since it provides for a ‘medical scheme fees tax credit’, which is a deduction that applies on fees a taxpayer pays to a registered medical aid scheme. Whilst South Africans are forking out large amounts of money for private medical care in the absence of quality public healthcare systems, the small positive aspect is this annual tax deduction for medical aid fees. Similarly, SARS allows taxpayers who receive a travel allowance to claim, when submitting their tax returns, a deduction for the use of their private vehicles for business purposes – the positive aspect here again is this annual tax deduction on travel allowances.
Similar measures should be adopted in respect of the current power crisis in which South Africa has found itself in.
The National Treasury could implement legislation and processes to alleviate the burden on taxpayers and to subsidise them for the financial inconvenience that is caused by the blackouts. The government has previously demonstrated its capabilities when faced with a crisis. During the Covid 19 pandemic we saw how quickly legislation could be amended in response to it. We were declared to be in a National State of Disaster under the Disaster Management Act within 10 days from the date of confirmation of the first Covid 19 case in South Africa, and the government published amendments which were to be adhered to for the duration of the pandemic.
Is it time for the South African government to acknowledge that these blackouts and unprecedented inconveniences and expenses have put us in another State of Disaster? Where are the relief measures that we experienced during the Covid 19 pandemic? Taxpayers desperately need help.
Where the pinch and the economic crunch is so desperately widespread throughout South Africa, relief measures to assist taxpayers in reducing their tax liability through tax deductions, rebates, allowances, and exclusions would go a long way. Other tax relief measures could include efforts to assist taxpayers who are behind on their taxes to settle their tax-related debts, implementing a loadshedding tax credit to allow for “loadshedding expenses” to be claimed, and publishing a list of items which could be classified as “essential loadshedding items”. This list could include all items required by a household to operate normally, as it would have, if there were no blackouts.
Taxpayers would then be entitled to a tax credit on all items on that list for as long as the blackouts continue in South Africa. Taxpayers would be required to keep accurate records and evidence of these expenses as supporting documentation. The amounts incurred in purchasing loadshedding essentials would qualify as deductible expenses and taxpayers would be provided with refunds or credits, similar to the travel allowance deductions.
The National Treasury could also introduce a monthly tax subsidy for all employees earning below a certain amount. This subsidy could be provided through a PAYE credit system. When a taxpayer is owed a refund, SARS could allow for earlier submission of tax returns, thus speeding up paying out refunds.
The blackouts are evidence that taxpayers are not getting value for their money and that they get very little out of the taxes they pay. The least the South African government can do is to implement tax relief measures, through the implementation of temporary measures to ease the burden caused by the blackouts.