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South African Employment Tax Incentive Signed Into Law

by Lorys Charalambous,, Cyprus

24 December 2013

It has been announced that President Jacob Zuma has signed the Employment Tax Incentive (ETI) Act of 2013, which will take effect on January 1, 2014, and aims to reverse the high levels of youth unemployment by reducing the cost to employers of hiring employees between the ages of 18 and 29.

The Act will encourage private employers to employ young workers by providing a tax incentive to employers, with government sharing the costs of such employment. It is also intended that the initiative will be extended to support employers in the special economic zones, and may also, in the future, cover workers in certain approved industries.

The ETI will function by decreasing the amount of pay-as-you-earn tax that is payable to the South African Revenue Service (SARS) for every qualifying employee that is hired by the employer. There will be no change in the wages that the employee receives but the effective cost of hiring the employee will be lower, hopefully making it more attractive for firms to increase employment.

Employers can claim the ETI on a sliding scale for any employee between the ages of 18 and 29 who has been hired on or after October 1, 2013, who possesses a South African ID and is receiving a monthly salary that is above the relevant minimum wage and less than ZAR6,000 (USD575) per month. If there is no legal minimum wage applicable in a particular sector, the monthly salary must be greater than ZAR2,000. Domestic workers and employees connected or related to the employer are not eligible.

During the first year the ETI's value will be 50 percent of the monthly wage up to a maximum wage of ZAR2,000. For wages between ZAR2,000 and ZAR4,000 the value of the incentive will be ZAR1,000, and for wages between ZAR4,000 and ZAR6,000 the ETI's value will decrease linearly from ZAR1,000 to zero.

The value of the ETI will decrease by half during the second year. An employer may only claim the incentive for a two year period for each qualifying employee.

The Act also contains checks and balances that are designed to prevent abuse and ensure that employers do not discriminate against older workers in order to merely access the ETI. It has also been emphasized that the National Treasury and SARS will monitor the incentive closely in order to evaluate and explore what works and which design can make the best use of taxpayers' money.

Early in 2014, SARS will publish documentation that will provide further details to assist employers in both understanding how the ETI will work and how they can claim it in practice.

TAGS: individuals | South Africa | tax | tax incentives | law | employees | ministry of finance | tax authority | unemployment | legislation | tax breaks | individual income tax | Employment | Africa | Tax

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