The historically high level of unemployment among South Africa's youth has led to the introduction of various tax incentives and benefits which aim to encourage the employment and training of such persons. Among these is the employment tax incentive scheme, which was introduced by the Employment Tax Incentive Act (26/2013).
The employment tax incentive is a temporary tax incentive aimed at encouraging employers to employ:
- people between the ages of 18 and 29; and
- people of any age in special economic zones and industries indicated by the minister of finance.
Under the scheme, eligible employers could reduce the amount of employee tax due by them.
The scheme originally came into operation on 1 January 2014 and was legislated to end on 28 February 2019, after which date no further employment tax incentive credits would be claimable by any employer.
A review of the scheme demonstrated the following positive outcomes:
- The employment growth rate and number of employees increased significantly in firms that claimed the employment tax incentive.
- The employment tax incentive improved employment growth rates even in firms with deteriorating employment rates, thereby demonstrating the role played by the scheme in halting job losses.
- The retention rate of the employees hired under the scheme after the two-year eligibility period lapsed was substantial, as employers appear inclined to retain those employees who have gained experience and training.
Given this success, it has been proposed that the scheme be extended by 10 years, allowing employers to claim the employment tax incentive for qualifying employees until 28 February 2029.
A further amendment has also been proposed to cater for the effects of inflation. Notably, the employment tax incentive is claimable for employees earning income within specified income bands. From 1 March 2019 employers will be entitled to claim the maximum value of R1,000 per month for each employee earning up to R4,500; previously this amount was R4,000. The maximum monthly income earned by employees to qualify for the employment tax incentive has also increased from R6,000 to R6,500 per month.
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