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South African Employment Tax Incentive Welcomed

by Lorys Charalambous, Tax-News.com, Cyprus

07 November 2013


The South African Government has welcomed the approval in parliament of the bill to introduce the Employment Tax Incentive (ETI), which 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 ETI will encourage employers to give young people their first job experience, and works through a cost-sharing mechanism with the Government within the pay-as-you-earn system, while not having an impact on the wage the employee receives.

It will operate by decreasing the amount of tax that is owed by an employer through the pay-as-you-earn system. The amount of tax that is owed by an employee will still be recorded as being paid (there will be no shortfall on assessment), while the employer may retain the cash value of the incentive.

Qualifying employees must be between the ages of 18 and 29, possess a South African ID and must receive a salary that is between the minimum wage for that specific sector and ZAR6,000 (USD587) per month. The incentive will be available for the first two years of employment, and its value is prescribed by a formula, which has three components for different wage levels.

One of the responses to the draft bill was that it would result in the displacement of older and unsubsidized workers, with a hiring bias toward younger people where these employees could easily be replaced after two years of employment. However, Acting Government Communication and Information System CEO, Phumla Williams, said: "Government is confident that thorough consultation processes were undertaken, and concerns that were raised have been responded to. The bill makes clear provisions to correct potential abuse by employers and has no impact on current labor relations or legislation, and will by no means weaken the rights of the workers."

It has also been emphasized that the National Treasury and the South African Revenue Service will monitor the ETI closely in order to evaluate and explore what works and which design can make the best use of taxpayers' money. These findings will be shared with interested stakeholders and the public to illustrate the extent of the impact of the proposal.

The ETI will commence on January 1, 2014, and will be available until December 31, 2016. However, to avoid the possibility of employers holding off hiring decisions until January 1, 2014, the incentive will apply to all qualifying employees who were hired after October 1, 2013.

TAGS: individuals | South Africa | compliance | tax | business | tax compliance | tax incentives | law | employees | unemployment | legislation | tax breaks | individual income tax | Employment | Africa | Tax

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