South African poll criticizes Employment Tax Incentive

A poll conducted by the South African Institute of Tax Practitioners (SAIT) shows that the Employment Tax Incentive (ETI) is not succeeding in its aims.

“SAIT’s poll has revealed government’s marketing of this incentive has not been as effective as hoped, especially among small businesses,” says Professor Sharon Smulders Head of Research at SAIT. “Although the results indicate that large businesses are more aware of this incentive and have approached their tax practitioners for assistance in this regard, it is the small businesses that don’t appear to know of the existence of the incentive and what it actually entails.”

President Jacob Zuma signed the Employment Tax Incentive Act on 18 December last year, after associations Numsa and Cosatu had considered taking Finance Minister Pravin Gordhan to court for presenting the ETI Bill in Parliament last year without first consulting with the National Economic Development and Labour Council.

Despite the lack of awareness of the incentive among small businesses, it is encouraging to see that, of the small businesses that are aware of the incentive, 60.2 percent of respondents’ small business clients are considering employing young people to obtain this tax incentive thereby fulfilling one of the main purposes of the ETI. This is not so evident in the larger businesses (41 percent), but overall, there appears to be a “wait and see” attitude being portrayed by businesses as to whether they will actually employ the youth or not, advises Smulders.

Small businesses are losing out on the ETI benefits if their payroll systems do not cater for the reduction in their PAYE bill – this was available for the first time when submitting the EMP 201 on February 7, 2014.

According to the poll, tax practitioners advising large businesses fear that the cost of compliance with this incentive will outweigh the benefits thereof, and a third of the tax practitioners assisting small businesses stated that the costs would outweigh the benefits of the ETI.

When asked if the ETI is complex, surprisingly, it was the larger businesses that tended to answer yes, possibly because the incentive is calculated per employee. The need to identify qualifying employees that were employed on/after October 1, 2013, and monitor qualifying employee movements may all be reasons resulting in this perception, suggested Smulders.

Other possible reasons for this cautious answer could be that tax practitioners are wary of additional requirements that might be introduced at a later stage by SARS as has been the case with the introduction of the bi-annual submission of the EMP 501s over and above the monthly EMP 201s. The administration surrounding the termination of a qualifying employees’ employment might also be something that has not yet crossed their minds and might be considered complex.

The respondents’ overall perception of the purpose of the ETI is that it is a valid incentive introduced to reduce the cost to employers to hire young people and to reduce unemployment among the youth. The suggestion of this incentive being an election tool was refuted by the respondents.

“As with all other incentives, the effectiveness of this incentive should be monitored closely by the government and necessary changes should be made where shortcomings are established,” stated Smulders. SAIT confirmed that it will continue to assist government with this evaluation by conducting polls of this nature in the future.

This article first appeared on

via News – Tax Indaba 2014.

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