Proposed Employment Tax Incentive amendments
On Tuesday 26th of November 2019, three tax-related bills were tabled by the Minister of Finance in the National Assembly and are now awaiting the approval of by the relevant parties’ approval for final promulgation by the President. Historically the basis for the amendments were formed part of Minister of Finance Mr Tito Mboweni’s Budget announcements on 20 February 2019.
What was tabled:
- Rates and Monetary Amounts and Amendment of Revenue Laws Bill (includes changes to personal income tax tables, raise of sin-tax for alcohol and tobacco as well as adjustments to the income bands which qualify for employment tax incentive.)
- Taxation Laws Amendment Bill (aimed to lessen the taxes which retirement funds may withhold on spousal pensions and becomes effective on 1 March 2021 as the original effective date 1 March 2020, was postponed for administrative reasons.)
- Tax Administration Laws Amendment Bill (technical corrections to the Income Tax Act)
National Minimum Wage
With regards to the Employment Incentive Scheme section of the Bill, the proposal’s goal was focused on the addressing the now misalignment of the incentive scheme to the new National Minimum Wage Act of 2018, effected in January 2019. The Employment Incentive scheme was originally introduced in January 2014 with the purpose of reducing the cost of hiring young people between the ages of 18 and 29, within the business and to incentivize their employment. This was established with the goal of encourage employers to consider the benefits of hiring those without previous work experience through this cost-sharing mechanism.
The salary cap for qualifying employees who earn more than the National Minimum Wage (NMW) has increased from R6,000 to R6,500.
Definition of Qualifying companies
- Those who carry on business from a fixed place of business within a Special Economic Zone (SEZ) or, alternatively, are incorporated or effectively managed in South Africa;
- Those who carry on business in a SEZ which is chosen by the Minister of Trade and Industry, as well as approved by the Minister of Finance after consultation with the Minister of Trade and Industry;
- Those who derive at least 90% of the income of that company from the carrying on of business or the provision of services within that SEZ; and
- Those who have less than 20% of their transactions with connected persons that are South African residents. Transactions with non-residents must be attributed to a permanent establishment in South Africa.
The proposed amendments should encourage employers to favour the employment of those employees who were previously disadvantaged, to have more of an opportunity to gain employment as well as workplace learning opportunities which they were unable to access in the past. This will also go a long way to addressing the current intolerably high unemployment rates within the country. Employees who hire previously disadvantaged individuals who were formerly disempowered as a result of their race, gender or status of disability, may have more access to opportunities which in the past, eluded them.