Employment Tax Incentive

The Employment Tax Incentive was introduced by the Employment Tax Incentive Act 26 of 2013 which was promulgated on 18 December 2013. This Act has since been amended on a number of occasions. SARS recently updated their guide to provide general guidance on the incentive and may be found here.

The ETI is a temporary tax incentive that may be claimed by eligible employers and is aimed at encouraging such employers to employ young employees between the ages of 18 and 29, and employees of any age in special economic zones and in any industry identified by the Minister by notice in the Government Gazette.

Payment of the incentive is effected by eligible employers being able to reduce the employees’ tax due by them by the amount of the ETI that they may claim provided that they meet the requirements of the ETI Act.

The ETI is administered by SARS through the employees’ tax system that is deducted and withheld and accounted for to SARS (usually monthly) via the Pay-As-You -Earn (PAYE) system.

The ETI programme initially covering a period of three years. The ETI will be subject to continuous review of its effectiveness and impact in order to determine the extent to which its core objective of reducing youth unemployment is achieved. The ETI commenced on 1 January 2014 and will end on 28 February 2029. It applies to qualifying employees employed on or after 1 October 2013 by eligible employers.

An employee is a “qualifying employee” if the employee meets the requirements discussed below.

Firstly, the employee must be aged from 18 to 29 at the end of the month in which the ETI is claimed. An employee will therefore be a “qualifying employee” in the month that the employee turns 18 years old and will cease to be a “qualifying employee” in the month in which the employee turns 30 years old.

No age limit applies, however, if the relevant employee is employed by an employer operating through a fixed place of business located within a “special economic zone” or the employee is employed in an industry designated by the Minister.

The following six SEZs were designated by the Minister by notice in the Government Gazette effective from 1 August 2018:

  • Coega Special Economic Zone
  • Dube Transport Special Economic Zone
  • East London Special Economic Zone
  • Maluti-a-Phofung Special Economic Zone
  • Richards Bay Special Economic Zone
  • Saldanha Bay Special Economic Zone

SEZs promote targeted economic activities, supported through special arrangements and support systems, including incentives, business support services, streamlined approval processes and infrastructure.

Secondly, the employee must:

  • be in possession of either an identity card or a green identity book, an asylum seeker permit, or a refugee identity document
  • not be a connected person in relation to the employer;
  • not be a domestic worker as defined in section 1 of the Basic Conditions of Employment Act
  • be employed by the employer or an associated person on or after 1 October 2013;
  • not be an employee for whom an employer is ineligible to receive the ETI and
  • receive monthly remuneration of less than R6 000.

Domestic workers are excluded as qualifying employees owing to the private nature of the cost of their wages. The definition of “domestic worker” does not include a farm worker. A farmer who is eligible and employs a qualifying employee will therefore be able to claim the ETI.

The table below illustrates how the ETI will be calculated in relation to the remuneration received by a qualifying employee from 1 March 2017.

Monthly Remuneration ETI per month during the first 12 months in which the employee qualified   ETI per month during the next 12 months in which the employee qualified
R0- R1999 50% of monthly remuneration 25% of monthly remuneration  
R2000–R3999 R1000   R500
R4000–R6000 Formula R1000 – [0.5 x (monthly remuneration – R4000)]   Formula R500 – [0.25 x (monthly remuneration – R4000)]

In order to determine the ETI amount for an employee who is only employed for part of a month, the “monthly remuneration” paid or payable to the qualifying employee for the month is determined by grossing up the actual remuneration earned by the employee for part of the month (i.e. calculated as if the employee had worked for the full month) and the corresponding ETI calculated on the grossed up amount, as if it were for a full month.

Once this grossed-up amount of remuneration has been determined, the basic calculation or formula can be applied depending on the level of monthly remuneration that has been received and how many months the qualifying employee has been employed with the eligible employer.

In addition to the ETI, an employer may be eligible for a deduction of a learnership allowance during a year of assessment if the requirements of section 12H of the Income Tax Act are met.

Relevant laws:

  • Employment Tax Incentive Act 26 of 2013
  • Income Tax Act 58 of 1962
  • Labour Relations Act 66 of 1995
  • Tax Administration Act 28 of 2011
  • Value-Added Tax Act 89 of 1991

This article is provided for information only and does not constitute the provision of professional advice of any kind.

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