South Africa Opposes the Employment Tax Incentive

The South African National Treasury secured its declaration of proposed employment tax incentive, subsequent to the responses it received from public during the consultation on the Bill arranging for its introduction.

The employment tax incentive is mainly for encouraging employers to give youngsters their first job experience, as well as lifting up the employment within the firms operating in the Special Economic Zones, at a total revenue cost of ZAR500m (USD51m) in the year 2013/14 tax year.

It will reduce the cost of hiring employees between the ages of 18 and 29 through a cost sharing mechanism with government, and also it will not have any effect on the employee wage.

The incentive will be calculated by decreasing the tax figure that is payable through the pay-as-you-earn system. However the tax unpaid by the employees will still be counted as paid tax while the employer may still have the cash value of the incentive.

The National Treasury also pointed out the fact that  among the rates of unemployment worldwide, South Africa is having the highest  unemployment rate especially among the young people. Around 42% of the young people under the age of 30 are unemployed compared to 17% of those who are 30 years or older.

Further it added that the government is to implement the cost-sharing mechanism with the employers in the private sector in order to encourage them and appoint young people including less experienced employees as a part of youth employment strategy. This is only a temporary program to encourage further long term skills upgrade programs and therefore it is a three year closure agreement.  

For the first two years of employment the incentive will be available. One of the feedback of the draft Bill was that it would result in dislocation of the older workers and leaning towards hiring younger people where these employees can be easily replaced after two years of employment. However this was not accepted by the National Treasury as the legislation has particular rights to penalize potential abuse by employers where current employees are been removed in order to access the access the incentives.

The National Treasury and the South African Revenue Service will closely monitor the incentive to classify and judge what works and which approach can make the best use of taxpayers money. These data will be shared with some stockholders and the public to identify the impact of the proposal.

It is expected that a revised bill will be introduced in the Parliament by the end of October for the formal parliamentary legislative process. The employment tax incentive is expected to initiate from January 1, 2014 and it will be available till December 31, 2016.