Author: Lloyd Ponter, Tax Consultant Grant Thornton Johannesburg
The Employment Tax Incentive (“ETI”) was introduced from January 2014 and is scheduled to end on 31 December 2016, when its effectiveness will be reviewed to determine whether it should continue beyond this date. Despite the possible termination looming, employers still have an opportunity to benefit from this incentive.
In summary, the ETI is available to “eligible employers” as defined in the Employment Tax Incentive Act and can be claimed in respect of “qualifying employees.” The ETI is aimed quite specifically at the private sector and its intention is to encourage the employment of employees of a certain profile. This includes employees who inter alia:
- earn R6,000 or less per month;
- are between the ages of 18 and 30 years old;
- are persons with a valid South African Identification Card, or who possess an asylum seeker permit; and
- were employed on or after 1 October 2013.
Read our full explanation of how the ETI functions work here.
The ETI is claimed against an employer’s PAYE liability on its monthly EMP201 declarations. The quantum thereof, ranges between nil and R1, 000 per employee per month, in the first year of employment, and is effectively halved in the second year. Due to their low income, most qualifying employees wouldn’t be liable for PAYE and the ETI is therefore a claim against the employer’s overall PAYE liability. It has the potential to decrease the PAYE liability of some employers significantly.
Employers that haven’t claimed the ETI yet are still able to the claim the retrospective amounts in current tax periods, but must adhere to the relevant rollover provisions and other limitations. It is recommended that all employers, whether they have claimed the ETI or intend doing so in future, quantify their ETI roll over limitation on a six-monthly basis to avoid undue errors and resultant interest and penalties.
There are numerous requirements, provisos and pitfalls contained in the ETI Act which could result in an employer incorrectly claiming the allowance. Furthermore, employers are only entitled to claim the ETI if their tax affairs are in order failing which, there may be significant penalties. In such cases, we recommend that those employers quantify their errors and apply for relief in terms of the SARS Voluntary Disclosure Programme to avoid inter alia, “understatement penalties” levied under the Tax Administration Act, which can range anywhere from 0 to 200% of the prejudice to the fiscus.