Businesses in support of employment tax incentive
15 November 2016
Posted by: Author: Amanda Visser
Author: Amanda Visser (IOL)
The employment tax incentive is due to expire at the end of this year, and there is uncertainty about its future.
Business has called for a two-year extension.
The incentive aims to stimulate employment for young people between 18 and 29 years and has supported about 646 000 youth jobs in 2014/15. This represents 5.7 percent of all the individuals in the tax base.
According to research conducted on behalf of the National Treasury, the number of supported jobs represented 18 percent of the 3.65 million youth in employment by March last year.
The government has spent R6 billion from the start of the incentive in January 2014 until February this year.
Nedlac, a labour, business and civil society representative body, said in its recent review of the employment tax incentive (ETI) it was clear that the scheme had a positive impact on employment.
The incentive encourages employers to hire workers between the ages of 18 years and 29 years and who earn less than R6 000.
Employers get a monthly incentive - depending on the salary offered - for two years.
The government has proposed the continuation of the incentive, but with a cap of R20 million on the value which an employer can claim.
This has not been met with huge enthusiasm.
Tanya Cohen, Business Unity SA’s representative on the Nedlac ETI task team, is not in favour of a monetary cap. She said if one considered the 2014/15 statistics at least 92 000 jobs would have been excluded from the scheme if there was a cap.
Cohen said research was inconclusive about the impact of a cap. “It would therefore be irresponsible to impose the cap based on the limited evidence available.
“Every youth job that can be supported is critical.”
Jaco la Grange, the chair of the personal tax technical work group at the South African Institute of Tax Professionals (Sait), said it could have an adverse effect on companies operating through different divisions within the same company as opposed to companies that operate through different subsidiaries.
La Grange said a company that paid young employees between R2 000 and R4 000 per month would be eligible for a R1 000 tax incentive per employee.
This meant that only 1 666 jobs would be supported (R1 000 x12 x 1 666 = R19.9m).
Business Unity SA said in a presentation to the standing committee on finance in Parliament this week that the cap would unintendedly penalise companies that were leveraging the incentive to create youth jobs in conjunction with skills development.
Rob Cooper, the chairman of the industry body Payroll Authors Group of South Africa, said he had been a vocal supporter of the incentive, but had also been critical of the complexities in the design of the incentive.
It undermined efficient, easy and low-cost administration, and outweighed the economic rationale of the incentive.
He referred to the formula that payrolls must use to calculate the incentive. Cooper explained that the three-step formula required “grossing-up” and “grossing down” calculations when someone did not work a full month.
“The identification of a partial month in the face of modern, flexible working arrangements has been an on-going problem since the first day. The calculations and the data that the employer must provide for the grossing-up puts a significant administrative burden on the employer and the payroll.”
Cooper said the complexities resulted in expensive administration, and increased the risk of getting it wrong with painful results in the form of penalties and interest.
“Sadly, many thousands of employers are simply not interested in the incentive for these reasons.”
However, many of those who did participate, were keen on its continuation? Many were getting a massive tax incentive for what they were in any case supposed to do.
Cooper said it was difficult to determine if the jobs supported by the incentive would be sustained once the incentive came to an end.
There was no training linked to the appointment of the young worker, who would generally have limited skills and very little experience.
“It is not a good recipe, but the youngsters who apply themselves and make the best of their opportunity, could easily become star employees in the future. At least they are given a chance,” said Cooper.
Cohen referred to a survey done by Singizi Consulting, which indicated that employers had retained a number of employees after the conclusion of the incentive as they had required the necessary skills and experience.
“The fact that firms continue to employ in the second year of the incentive when it is half the original value also signals that the scheme is working,”she said.
Many thousands of employers are simply not interested for this reason.
This article first appeared on iol.co.za.