Employment Tax Incentive Bill (ETI) - Q & A (1)

The new Employment Tax Incentive Bill has raised a lot of questions.   While I put out an overview a few weeks ago, there are some queries that keep coming up.   Over the next week, this blog will cover some of them.

Large numbers of unemployed are a problem for any country, but when young people leave the education system with a very poor chance of getting a job, their motivation to achieve is impacted from day one.

Statistics indicate that 50% of 15 to 25s are unemployed, and 29% of 25 to 34 year olds.   The ETI Bill aims at the 18 to 29 year olds who are believed to be around 30% of the total unemployed which is sitting at approximately 25%.

The concept of introducing a subsidy for employers who take on young people is not a new one, but there has been significant resistance.   The draft bill was released in September, and the formal bill was published on November 4^th, 2013.  

When is it happening?

Treasury has set a “go live” date of 1^st January, 2014.  

The bill has a so called “sunset” clause, i.e. it is in effect for three years only – January 1^st, 2014 to 31^st December, 2016. 

What are the objections and opportunities for abuse? 

There is a concern that companies will terminate existing employees in order to hire people who are eligible for the incentive

The bill is seen by the opposition to be a “watered down” version of the Wage bill proposed in 2010

It is also seen as unfair that people who are already employed will be excluded, leading to the fear that people will be dismissed and rehired to render them eligible

 

Response to the objections 

Employee’s being displaced are a cause for the employer to be disqualified from receiving the tax benefit

Treasury has commented that there is general protection from abuse built into the bill

 

Which Employers Qualify? 

Employers who are registered to withhold and pay employees tax (Para 15 of the Fourth Schedule of the Income Tax Act)

Which Employers are Disqualified? 

Local, provincial or national government

Municipal entities

Public entities (Public Finance Act of 1999), although the Minister of Finance may designate exceptions

Employers who are found to have displaced employees in order to benefit from the incentive

Employers who do not comply with the training conditions (as yet unspecified)

Employers who do not meet the conditions based on the classification of trade (SIC)

Employers who are not in good standing with SARS on the last day of the month

Are there penalties for non compliance? 

Yes

For non-compliance in terms of wage regulating measures, the claimed sums must be remitted to SARS as a penalty

Displacement includes a R30 000 penalty per displaced employee and possible disqualification from further tax incentives

Which Employees qualify? 

Employment date is October 1^st, 2013 or later

Employee is between 18 and 29 years old on the first day of the month and not yet 30 on the last day of the month

Has a South African Identification Card (Act No 68 of 1997)

Has a formal Asylum Seeker document  (Act No 130 of 1998)

Should a company have an office in a Special Economic Zone (SEZ), and the employee (of any age) renders the majority of his/her services in that zone

Special industries, to be designated by the Minister of Finance in consultation with the  Ministers of Labour and  Trade and Industry

Which Employees do not qualify?

Domestic workers are specifically excluded

The employee may not be connected to the employer (Section 1 of the Income Tax Act)

If there is no minimum wage in place, an employee earning less than R2 000 is excluded

This is the first section of a three part article.

South African Treasury

Accsys News (Full article)
Payroll Authors Group SA