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Announcement: Providing Clarity on the Current Status of ETI Legislation

Dear readers

The previous ETI legislation expired on 31 December 2016. For this reason, there has been a flurry of activity on this website, asking if the ETI legislation has been extended, and If so, in what format.

As a courtesy, the following excerpt ought to provide readers with the necessary sought after clarity they are looking for.

Extension of [period of] the Employment Tax Incentive (ETI)

National Treasury EmblemThe following is an excerpt from the EXPLANATORY MEMORANDUM ON THE EMPLOYMENT TAX INCENTIVE AMENDMENT BILL, 2016 (DRAFT) dated 23 September 2016.

[Applicable provision: sections 1, 4, 7, 9, 10 and 12 of the Employment Tax Incentive Act No. 26 of 2013]
  1. Background The Employment Tax Incentive (ETI) was introduced in January 2014 to promote employment, particularly of young workers. A programme of this nature is new to the South African policy landscape. The initial three-year period of the programme was intended to evaluate the viability of the programme, and to indicate initial economic effects.
  2. Reasons for change During the legislative process to introduce the ETI, National Treasury committed to review the programme before its sunset 3 years later. While the broad contours of potential impacts were known at the time, the sizes of impacts were subject to some variation. From the review process, we are now able to indicate significant positive effects on growth rates of youth employment in claiming firms – albeit modest in size. Significant, wide-spread negative effects did not materialize. In its current form, the incentive can only be claimed by employers up to 31 December 2016.  In order to extend the programme, the process of legislative amendment is required. Government has seen a higher-than-expected take up, which means that the programme exceeded initial cost estimates. We have also started to gather an evidence base to indicate for which employers the incentive makes the biggest impact – namely in smaller firms. While this does not suggest that there are no effects in larger firms, we can attempt to target the incentive better in order to eliminate some portion of windfall benefits for activities that would have taken place in absence of the incentive. 5
  • Proposal To extend the ETI programme beyond 31 December 2016, we propose the following refinements to its application:
    • Extending the incentive: Allow claims beyond the current sunset of 31 December 2016, namely until 28 February 2019. The extension to the end of February is proposed in order to coincide with the end of the tax year. During this period further data and evidence on the performance of the programme can shed light on impacts of the programme.
    • Imposing caps on the level of claims: Employers will only be able to claim up to a total of R 20 million in each tax year. As our evidence base is preliminary in nature, we invite comments on the potential impacts of such a cap.
    • Limit roll-overs and back-dated claims: Monthly claims can only be made up to the date of each 6-monthly reconciliation. After that no further claims for that reconciliation period can be allowed. At this time any excess becomes available as a refund.
    • Clarifying the number of hours worked.
    • Clarifying the applicable hours in the grossing up / grossing down calculation.
    • Administrative issues.
[NOTE] — Effective date The proposed amendments are deemed to have come into effect from 1 October 2016. A separate effective date for capping amounts is proposed to come into effect from 1 March 2017.

[UPDATED: 11 January 2017]

President Jacob Zuma has signed several Bills into law. The Bill seeks to amend these laws in order to bring them in line with the new Taxation Laws Amendment Act. These include the Taxation Laws Amendment Act, inclusive of the Employment Tax Incentive Act, 2013 as well as Taxation Laws Amendment Acts, 2013, 2014 and 2015. New ETI benefits are now effective 1 January 2017. — (original source of this announcement)


Credit: excerpt sourced from National Treasury of South Africa


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Adrian Baillie-Stewart

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