Draft Employment Tax Incentive Bill
27 September 2013
Posted by: Author: Deloitte
The Draft Employment Tax Incentive Bill was released for public comment on 20 September 2013. This Draft Bill aims to incentivise the employment of young, first time workers between the ages of 19 and 29 earning less than R6 000 per month (R72 000 per annum).
The concept of an employment tax incentive was first announced by the President in his 2010 State of the Nation Address; and in the 2010 Budget. It is proposed that employers who are registered to withhold and pay tax on behalf of their employees (PAYE) will be eligible to decrease the PAYE employees’ tax that is payable for hiring qualifying employees by the incentive benefit. This employment tax incentive is expected to commence on 1 January 2014, for employment commencing after 1 October 2013, and will be available until 31 December 2016.
It is proposed that a qualifying employee is a person who meets the following requirements:
- The employee must be in possession of a valid South African identity card;
- The employee must not be less than 19 years old and more than 29 years old;
- The employee and the employer must not be connected persons as defined in section 1 of the Income Tax Act;
- The employee’s salary must be between the minimum wage for that specific sector and R6 000 per month, with a minimum of R2 000 per month applying where no sectoral determination is applicable; and
- The employee is not a domestic worker as defined in section 1 of the Basic Conditions of Employment Act, 1997.
The employment tax incentive is also available to employers operating through a fixed place of business located within a Special Economic Zone (SEZ), designated industries as well as certain public entities as nominated by the Minister of Finance by notice in the Gazette. Age limitations will not be applicable here.
The proposed incentive will be available for a maximum 24 month period per qualifying employee broken up into a "first 12 months” and the "next 12 months”. The benefit is prescribed by a formula as follows:
Monthly incentive for first 12 months of employment
Monthly incentive for next 12 months of employment
R0 – R2 000
50% of monthly remuneration
25% of monthly remuneration
R2 001 – R4 000
R4 001 – R6 000
R1 000 – (0.5 x (monthly remuneration – R4 000)
R500 – (0.25 x (monthly remuneration – R4 000)
Therefore the monthly value of the incentive for the first 12 months of employment of qualifying employees for differing levels of monthly salary is as follows:
| Monthly remuneration in R|| 1000||1500 ||2000 ||2500 ||3000 ||3500 ||4000 ||4500 ||5000 ||6000 |
| Monthly incentive benefit in R||500 ||750 ||1000 ||1000 ||1000 ||1000 ||1000 ||750 ||500 ||0 |
The incentive benefit in the second 12months of employment will be half of the amount described above. There is no limit to the number of qualifying employees that an employer can hire. However, the employer cannot deduct more than the total amount of tax that is owed to South African Revenue Services through the PAYE system.
Disqualification in respect of displacement
It is proposed that employers will face a penalty of 150% of the value of the incentive that they received for the previous 12 month period if it is found that have "unfairly” dismissed an employee in order to hire a new qualifying employee to take advantage of the incentive. These employers will be excluded from any future participation in the incentive.
This article was first published on deloitte.com