For most South African SMEs already contending with a contracting economy, the additional shocks from COVID-19 have placed further pressure on their operations. For some, this may not be a bridge too far as analysts at Sasfin are predicting that around 60% of SMEs may close before the crisis is over.
The lockdown measures would have caused revenues in many SMEs to fall precipitously, forcing owners to cut back on business spending to survive. Many will even be considering – despite the threat of penalties – the option of delaying tax payments in an effort to cover short-term urgencies such as rent, salaries and long-overdue accounts.
The South African Revenue Service has granted relief in regard to taxes wherever possible taxes but this doesn’t remove the burden entirely and the impending provisional payments deadlines is an opportunity to examine the consequential costs between either incurring a penalty by deferring tax payments, or applying for loan financing to manage or pay the tax debt.
It is advisable to consult your accountant to determine the costs of both options. A late payment of tax will incur an immediate penalty of up to 10% of the amount unpaid, followed by interest fees as well. Ideally, the business owner considering a loan to cover their tax debt would want to ensure that the cost of that debt does not exceed 10% (or 14%, considering that interest and penalties paid to SARS are not deductible for tax purposes whereas the interest on the debt is.)
There are a number of short-term (bridging) finance providers who would be able to provide cost calculations to help make a balanced decision. Ultimately, the benefit of financing tax debt would depend on the term and flexibility of the loan instrument.