What you need to know about the tax incentive responsible for 270 000 jobs

Updated on 21 January 2015

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What you need to know about the tax incentive responsible for 270 000 jobsThe Employment Tax Incentive (ETI) recently made news for helping to boost jobs in South Africa. According to Treasury spokesperson, Jabulani Sikhakhane, about 270 000 young people had landed jobs since the implementation of the Employment Tax Incentive Act in 2014, the National Treasury said this month.
The incentive was first announced by President Jacob Zuma in 2010 against growing concerns of an increasing rate of unemployment among young people. Following this announcement, Pravin Gordhan, at the time minister of finance, introduced the incentive in his 2010 Budget.
Here is everything you need to know about this incentive:

The goal of the Employment Tax incentive

The aim of the ETI is to facilitate the increased employment of young work seekers. The current phase of the Employment Tax Incentive is aimed at helping young people between the ages of 18 and 29 to get work.

The history of the incentive

In February 2011, a discussion paper, “Confronting youth unemployment: policy options for South Africa” was published. It was referred to Nedlac for consultation, and the National Treasury said the comments made at Nedlac had been included in the newly approved draft Bill.
The law was passed in December 2013 after consultations with labour unions and business at the National Economic Development and Labour Council (Nedlac).

The number of enterprises that have benefited from the incentive?

National Treasury spokesperson Jabulani Sikhakhane in a recent report said about 29 000 employers had made use of the incentive.
However, the National Treasury would continue to monitor the implementation of the incentive and may act to change it if there were unintended consequences that were not in line with the objective of creating more employment. Sikhakhane said the incentive would be up for review in 2016, where adjustments may be made to improve its impact.

What are the benefits for employers?

The incentive reduces the employers cost of hiring young people through a cost-sharing mechanism with government. This is done by reducing the amount of  Pay-As-You-Earn (PAYE) employers pay while leaving the wage received by the employee unaffected.
Example: Employers who are registered for PAYE, and who employ a person for the full month of February 2014 and earns R2000, will get R1 000 off their monthly PAYE liability (provided that the employee is a qualifying employee based on all the other remaining requirements).
Employers will be able to claim the incentive for a 24 month period for all employees who qualify, and the incentive complements existing government programmes with similar objectives e.g. learnership agreements.

Who qualifies?

To claim ETI, employers must be registered for Employees’ Tax (PAYE), or must be eligible to register for PAYE (e.g. the employer can’t register just to claim ETI, other registration requirements must be met).

Who is excluded? 

Local, provincial or national bodies, municipal or public entities.

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