Proposed amendments to the Employment Tax Incentive Act: A win-win for employers and employees
19 Aug 2019
To encourage employment across specific sectors in South Africa, the Employment Tax Incentive Scheme (ETI Programme) was introduced. Since 2014, this ETI Programme was structured in a way which mutually benefits both the employee and the employer. This mutually beneficial relationship was achieved by offering an employer an employees’ tax incentive if the employer employed anyone within the definition of “qualifying employees” in the Employment Tax Incentive Act, No 26 of 2013 (ETI Act).
In terms of the Explanatory Memorandum to the Draft Taxation Laws Amendment Bill, 2019 (Memorandum) (Draft TLAB), the ETI Programme was initially only intended to be in force for a period of three years, but in 2017 this was extended for a further two years. Considering the need to support youth employment as highlighted in the State of the Nation Address (SONA) and after further consultations with NEDLAC, in 2018 the decision was taken to extend the programme until 2029.
Pursuant to this extension of the ETI, the Draft TLAB and Memorandum were recently published for public comment. The Draft TLAB contains, among other things, the proposed amendments to the ETI Act, while the Memorandum explains the reason behind the proposed amendments.
The proposed amendments were initially mooted in the 2019 Budget Review, which we discussed in our Special Edition Budget Speech Alert 2019.
General Principles and Proposed Amendments of ETI
The ETI Act was initially implemented in 2014 as a temporary measure/scheme primarily designed to promote the employment of young employees. Specifically, the definition of “qualifying employees” states that the following persons, amongst others, fall within this definition:
- Persons between the ages of 18 and 29 (s6(a)(i) of the ETI Act);
- Any employee employed by an employer operating through a fixed place of business located within a special economic zone (s6(a)(ii) of the ETI Act); and
- Employees within a specific industry as designated by the Minister of Finance (s6(a)(iii) of the ETI Act).
To promote employment for the abovementioned groups of persons, employers were incentivised to employ them by reducing employees’ tax payable by the employer in an amount determined in terms of s7 of the ETI Act. The Memorandum explains that this would reduce the cost to an employer for hiring employees from the stipulated groups by way of a cost sharing mechanism with the Government while leaving the employees’ remuneration unaffected.
Proposed amendment and reason for change
Amendments to the ETI Act which have been proposed are, among others, that of consideration for the new national minimum wage provisions in accordance with the National Minimum Wage Act, No 9 of 2018 (NMWA). It is proposed that the provisions relating to wages applicable in the NMWA be catered for under s4 of the ETI Act.
This has been as a direct consequence of the implementation of the NMWA and its regulations which only came into effect on 1 January 2019. The amendments seek to align the ETI with the provisions and regulations set out in the NMWA. It has been suggested that the national minimum wage should also be included as one of the eligibility criteria for purposes of claiming the ETI.
Another proposed amendment is that of the maximum amount of earnings for eligible employees in s6(g) of the ETI Act. According to the Draft TLAB, the amendment that has been proposed is to increase the earnings threshold of eligible employees to that of an amount of R6,500 as opposed to the original R6,000. This is to account for inflation, and to continue to include the employees which the legislature originally had in mind.
In the economic climate we as South Africans find ourselves in, more and more people are struggling to find work, and employers are looking to downscale in order to continue running profitable businesses. The ETI Act looks to incentivise the recruitment of employees within the parameters of the ETI Act and assists employers by offering a tax incentive for doing so.
The amendments proposed seek to allow for a continued positive implementation of the Act for the next 10 years, ultimately looking to benefit both employees and employers.
- Tax Alert: South Africa’s employment tax incentive
- Win for the employer: Judgment on the Employment Tax Incentive Act