Could the tax incentive boost employment?

By Staff Writer

Last week Cabinet approved the publication for public comment of the Draft Employment Tax Incentive Bill, which is aimed at encouraging employers to give young people their first job experience as well as boost employment.
 

What will this incentive mean for young job seekers?

According to Cabinet, the proposed employment tax incentive will reduce the cost to employers of hiring young people through a cost-sharing mechanism with government, while leaving the wage the employee receives unaffected. Employers who are registered for tax will be eligible to decrease their PAYE employees' tax that is payable for hiring a qualified individual.

To qualify, employees must be between the ages of 19 and 29, possess a South African ID and receive a salary that is between the minimum wage for the specific sector they are working in and R6 000 per month. A minimum of R2 000 applies where no sectorial determination is applicable. The employee cannot be related or connected to the employer in any way. Domestic workers will not be eligible for the incentive.

The incentive will be available for the first two years of employment. The value of the incentive is prescribed by a formula, which has three components for different wage levels. For monthly wages of R2 000 or less the incentive value is 50% of the wage, for wages that are above sectorial minima.

Cabinet added that for monthly wages that range from R2 001 to R4 000 the value of the incentive is R1 000 per month per qualifying employee in the first twelve months. For monthly wages between R4 001 and R6 000 the value of the incentive tapers down from R1 000 per month to zero.

The value of the incentive is halved for the second year of employment. In the Budget Review 2013 tax revenue of R500 million was set aside for the incentive for the 2013/14 tax year.
 

Will this tax incentive work?
 

According to Marc Sevitz, co-founder of online virtual tax assistant, this initiative could work if it were properly implemented in the work place.

“It will greatly reduce expenses by reducing tax liability for employers but there has to be a proper training program implemented. The training program could even be considered as a reason to give further tax incentives to companies. It will be good for the economy because in this way there will be more skilled workers in the workforce,” said Sevitz. 

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