On Sunday, 29 March 2020, South Africa’s National Treasury announced the introduction of a new tax relief on businesses affected by the COVID-19 (coronavirus) pandemic. The country’s Treasury is providing a tax subsidy of 500 rand ($28) per month to businesses, for each worker, for the next four months. The subsidy aims at shielding the impact of the COVID-19 outbreak on businesses most affected by it in the country.
According to a statement by the Treasury, “The tax adjustments are made in light of the National State of Disaster and due to the significant and potentially lasting negative impacts on the economy from the spreading of the COVID-19 virus.” In a further statement, the Treasury said it would also permit businesses with revenue of 50 million rand or less to delay paying 20 percent of their employees’ tax liabilities over the next four months.
In addition to buffering the financial shocks that most businesses absorb as a result of the outbreak, the subsidy would help businesses boost production at a time when the rand has crashed to an all-time low. This could also mean that the government would not be generating revenue from taxes, which is currently a key source of revenue generation for the economy.
On Friday, 27 March 2020, Moody’s, a bond credit rating facility, downgraded South Africa’s credit rating to junk status. By implication, South Africa will now be excluded from the FTSE World Government Bond Index (WGBI) as the status classifies their bonds as junks. The junk status would affect the country’s chances of borrowing in the international debt market and scare many of the world’s investment funds from investing in its junk-bonds.
This, however, has added to the prevailing financial market stress its economy is experiencing as it battles with a recession and the COVID-19 pandemic.
Before the outbreak of the virus in the country, the rand had recorded a deflation that was stirred by constant power cuts which slowed production processes, ushered some industrialist out of the country and gradually led the country into a deep recession. The pandemic further worsened the economic situation in the Southern African country, shutting down mines and major economic drivers in the company in the face of a 21-day lockdown.
On Friday, 27 March 2020, South Africa implemented a 21-day lockdown after cases of the deadly virus rose from 51 to over 1000 in less than 2 weeks. The stay-at-home measure restricts people to their homes and has led to the closure of most businesses in the country.