After years of consultation, the Cabinet has approved a proposed youth tax incentive aimed at encouraging employers to hire young people to deal with unemployment.
In a statement on Friday 20 September, National Treasury announced that the Cabinet has given a thumbs-up for the Draft Employment Tax Incentive Bill to be published for public comments.
The publication of the Bill comes after the Government put the proposal on ice to allow consultations with labour unions and business at the National Economic Development and Labour Council (Nedlac) to take place.
The incentive was first announced by President Jacob Gedleyhlekisa Zuma in 2010 as the “Youth Wage Subsidy” against the alarming concerns of an increasing rate of unemployment amongst young people.
National Treasury briefed Parliament’s Standing Committee on Finance on the bill on Thursday.
“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 qualifying individual.
“These employees must be between the ages of 19 and 29, possess a South African ID and must receive a salary that is between the minimum wage for that specific sector and R6 000 per month. A minimum of R2 000 applies where no sectoral 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.”
After Zuma first announced the incentive in his State of the Nation Address, Finance Minister Pravin Gordhan later introduced it during his 2010 Budget. These announcements were followed by the publication in February 2011 of a discussion paper, “Confronting youth unemployment: policy options for South Africa”.
It was then referred to Nedlac for consultations, and National Treasury said the comments made at Nedlac had been included in the newly approved draft Bill.
National Treasury said once the Standing Committee on Finance has processed the draft and hosted public hearings on the Bill, it will revise the Bill taking into consideration all comments made during the hearings.
The Bill would then be referred to Parliament for all legislative processes to be concluded.
On Friday, National Treasury said the incentive would commence on 1 January 2014, and that employers who hire young people from October 2013 will be eligible for the tax benefit.
“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 sectoral minima.
“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 pm 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.”
The incentive will also apply within Special Economic Zones (SEZ) and designated industries where the age restriction will not apply, National Treasury said.
Public entities identified by the Minister of Finance in regulation can also be eligible.