On the 19th of December 2013, the President of South Africa signed the Employment Tax Incentive Act No 26 of 2013 into law with effect from 1 January 2014.  The Act embodies the government's efforts to support job creation, particularly among the youth of South Africa but also in respect of job seekers in so-called special economic zones. 

The Act seeks to encourage employers to employ young and less experienced work seekers by providing a tax incentive, with government sharing the costs of such employment for a maximum of two years under certain conditions.  The incentive functions by decreasing the amount that the employer will have to pay SARS by way of PAYE for every qualifying employee that is hired by the employer.  This will have no effect on what the employee receives (i.e. an employee will receive no monetary benefit) but the effective cost of hiring the employee will be lower with the aim of making it more attractive for employers to increase employment. 

This incentive is available to all private sector employers in all sectors of the economy who are registered with SARS for PAYE.  The incentive is claimed on a sliding scale for any employee between the ages of 18 and 29 who have been hired on or after 1 October 2013, who possesses a South African ID and receive a monthly salary that is above the relevant minimum wage for the respective industry and less than R6 000 per month (a so-called "qualifying employee").

The incentive to be deducted from the employer’s PAYE obligation is determined on a monthly basis.  For example, for monthly remuneration of R2000 or less, the incentive is 50% of the monthly remuneration of the employee.  For remuneration between R2001 and R4000, the value of the incentive is R 1000 per month per qualifying employee in the first twelve months.  For remuneration between R4001 and R6000, the value of the incentive tapers down from R1000 to zero. In the first year of employment the employer can deduct the full value of the incentive, but in the second year of employment the incentive is halved throughout the wage bands.

This tax incentive may be denied where an employer has failed to submit any tax returns or owes a tax debt to SARS on the last day of a particular month. However, where an employer has entered into an arrangement with SARS regarding the tax debt owing, the exclusion will not apply.

The National Treasury has proposed extending this incentive until 2016 during which its effectiveness in stimulating employment will be closely monitored.  Time will tell whether this incentive has achieved its purpose.

If you have any further enquiries in this regard please contact Anton Lockem, Tax Partner lockem@wylie.co.za  or Murray Terwin.

Murray Terwin, Candidate Attorney

Contact: 031 575 7517 and mterwin@wylie.co.za