06 Apr 2020

Expansion of the Employment Tax Incentive Relief for a limited period

by Anton Lockem, Partner, Durban, Chrichan de la Rey, Senior Associate, Durban,
Practice Area(s): Tax |

On 1 April 2020, the draft Disaster Management Tax Relief Bill (“the draft Bill”) was published which proposes to widen the employment tax incentive relief (“ETI”) available to eligible employers in respect of qualifying employees under the Employment Tax Incentive Act 26 of 2013 (“the ETIA”), for a limited period.

The ETIA provides an employment tax incentive, to “eligible employers” in respect of “qualifying employees”, in the form of an amount by which employees tax (also known as PAYE), may be reduced.

Section 3 of the ETIA provides that “eligible employers” who can claim the ETI are private persons that are duly registered with SARS for PAYE and that are not disqualified by the Minister of Finance from receiving the incentive in terms of any labour relations dispute.

Section 6 of the ETIA provides the criteria for a “qualifying employee” and includes with limited exception, that the employee must not be less than 18 years old and not more than 29 years old at the end of the month the incentive is claimed. The monthly remuneration of the employee must be less than R6 500.

Section 7 of the ETIA sets out the formulae to determine the amount of the employment tax incentive. The maximum ETI claimable per qualifying employee is limited to R1000 in the first year of employment and R500 in the second year of employment. Furthermore, the monthly ETI can only be claimed for the first 24 months of the qualifying employee’s employment by the employer.

Section 9 of the ETIA provides for the carrying forward of the ETI amount to the immediately succeeding month in certain instances. Furthermore, section 10 of the ETIA provides for a reimbursement from SARS of the excess amount so carried forward, twice a year at the end of each employee’s tax reconciliation period. In the draft Bill Government proposes expanding the ETI relief for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020, as follows:

Increasing the maximum amount of ETI claimable by eligible employers for qualifying employees under the current ETIA during this four month period, from R1000 to R1 500 in the first qualifying 12 months and from R500 to R1 000 in the second 12 qualifying months

Allowing a monthly ETI claim in the amount of R500 during this four month period for employees from the ages of:

  • 18 to 29 who are no longer eligible for the ETI as the employer has already claimed the incentive in respect of those employees for 24 months;
  • 30 to 65 who are not eligible for the ETI due to their age.

Accelerating the payment of ETI reimbursements from twice a year to monthly as a means of getting cash into the hands of tax compliant employers as soon as possible.

The Bill does not alter the criteria for an “eligible employer” as provided for in section 3 of the ETIA and the expanded relief is not affected by the employer’s gross income.

This expansion will only apply to employers that were registered with SARS as at 1 March 2020. Furthermore, the current compliance requirements for employers under Sections 8 and 10(4) of the ETIA will continue to apply.

Given that majority employers are likely to experience severely reduced revenue due to the COVID-19 pandemic, the proposed expanded employment tax incentive relief is much needed. Employers must, however, ensure that they meet the qualifying criteria to claim the relief, including tax compliance.