National Treasury and the South African Revenue Service ("SARS") recently issued the new Draft Employment Tax Incentive Bill, 2013 ("Bill") for public comment.
The purpose of the Act, when passed, is to incentivise qualifying employers through the pay-as-you-earn ("PAYE") system to include young, less experienced employees in their workforce.
Essentially, qualifying employers would be allowed to deduct an incentive amount from the PAYE due to SARS, while the full amount will be reflected as paid on assessment.
The legislation is proposed to apply for an initial period of three years, commencing with effect from 1 January 2014, and will be reviewed after two years with the possibility of extending and/or refining same.
Only employers that are registered as such with SARS and that operate in the private sector, will be eligible to qualify for relief. This generally means that Government departments, municipalities and public entities are excluded unless specifically designated by the Minister of Finance by way of Government Gazette.
The Bill also contains two sets of anti-abusive provisions in terms of which qualifying employers that attempt to exploit the relief would be permanently disqualified. The anti-avoidance provisions exclude employers that:
- pay remuneration below the minimum wage; or
- displace an existing employee primarily to benefit from the incentive.
- Employers that displace (ie "unfairly dismiss") employees mainly to employ new qualifying employees to access the tax benefit would, in addition to being permanently disqualified, also face a penalty of 150% of value of the incentives received during the preceding twelve months.
Provision is also made in the Bill for the anti-abusive provisions to be expanded should the need arise in future.
Qualifying employees must:
- be in possession of a South African identity document;
- be between the ages of 19 and 29 years (both years included); and
- earn a monthly remuneration of less than R6 000.
- The age threshold requirement will become irrelevant if the qualifying employer operates his business either (i) in an industry, or through (ii) a fixed place of business within a special economic zone, in either case as designated by the Minister of Finance, in which case the remaining two requirements would still apply.
Certain employees are inherently excluded, even if they meet all of the above requirements, including:
- domestic workers;
- connected persons (as defined) in relation to their employers; and
- employees that were in the employ of the employer or an associated institution (as defined) prior to 1 October 2013.
The amount of the incentive
The amount of the incentive is based on two variables, being the amount of remuneration earned (up to a maximum of R6 000) and the period of employment (as the incentive is only available for 24 months).
During the first twelve-month period of employment, the monthly incentive is 50% of the remuneration earned by a qualifying employee earning up to R2 000; a flat rate of R1 000 for an employee earning remuneration between R2 000 and R4 000; and thereafter it decreases from R1 000 to nil (determined in terms of a formula) for an employee earning between R4 000 and R6 000.
During the second twelve-month period, the amount of the incentive is halved (assuming that the employee remains in the same remuneration bracket).
The variables are summarised in the table below:
|Monthly remuneration earned||Value of the incentive during the first 12 months of employment||Value of the incentive during the second 12 months of employment|
|R0 – R 2000||50% of the monthly remuneration||50% of the monthly remuneration|
|R2 000 – R4 000||R1 000||R500|
|R4 000 – R6 000||R1000 – [50% x monthly remuneration – R4 000]||R500 – [25% x monthly remuneration – R4 000]|
The incentive ascribed to an employee is based on the number of months that the person was employed. In other words, the incentive need not necessarily be accessed on a continuous basis or by one employer only.
The incentive could be rolled-over for use in future months in the event that the:
- incentive amount exceeds the PAYE liability of the employer in any particular month; or
- employer failed to meet its compliance obligations or is indebted to SARS.
- The roll-over amount will, however, be capped at the end of each six month reconciliation period, to R6 000 in respect of each qualifying employee.
It is currently proposed that the legislation will apply for a period of three years only. This means than an employer will forfeit incentives that have not been deducted as at 31 December 2016 (unless a decision is made in 2016 to extend the legislation).
The Act, once passed, will be an Act administered by SARS and so will fall under the Tax Administration Act, which covers all the relevant enforcement and collection procedures, including the SARS's right to obtain information, search and seizure, assessment, objection and appeal, etc.
By Ernest Mazansky , director, Werksmans Tax
Daleen Malan , senior associate, Werksmans Attorneys