Employee Tax Incentive Extension - Opportunities and Concerns

The Taxation Laws Amendment Act No. 23 of 2018, promulgated on 17 January 2019, extended the Employee Tax Incentive scheme (“ETI scheme”), which would have lapsed on 28 February 2019, for a further 10 years.

This is now part of our very sparse tax breaks offered by Government for the long haul and which is an easy and totally risk-free claim the employer can make, provided done correctly.

The benefits are simple and novel, being the employer gets a monthly cash tax break whilst employing the youth and giving those most in need of opportunity a chance to enter the employment market.

The ETI Purpose

The ETI has been effective from 1 January 2014, aimed at combatting high youth unemployment and the resulting long-term adverse effects on the economy. Restrictive labour relations combined with a lack of skills and experience have made potential employers hesitant to hire the youth.

The ETI scheme encourages employers to hire young work seekers by effectively reducing the cost of hiring young people. This is done by an immediate and monthly reduction in the amount of Pay-As-You-Earn that the employer needs to pay, whilst not affecting the wage receivable by the employee.

Thus, the tax saving is handed to the employer monthly, which saves administration and guarantees an immediate refund – quite nifty design.

Criteria of the ETI

  • Employees that qualify under the ETI scheme will need to meet the following requirements:
  • Possess a valid South African ID, Asylum Seeker Permit or an ID issued in terms of the Refugee Act;
  • 18 to 29 years old (no age limit is applicable if the employee renders services in the special economic zone (“SEZ”) as designated by the Minister of Finance);
  • Not employed as a domestic worker;
  • Not a “connected person” to the employer;
  • Employed by the employer or an associated person in relation to the employer on or after 1 October 2013; and
  • Paid the minimum wage applicable to that employer or if a minimum wage doesn’t apply, paid a wage of at least R2,000 and which may not exceed R6,000.

Minimum Wage Requirement Oversight

Government is often criticised for the left hand not knowing what the right hand is doing and this is an example as good as it gets.

On 23 November 2018, President Cyril Ramaphosa signed the Minimum Wage Bill into law, which sets the minimum wage at R20 per hour, or R3,500 per month, with effect from 1 January 2019.

It is noteworthy to point out that one of the major stakeholders in legislating the minimum wage was NEDLAC, the same council that partook in the consultations to extend the ETI scheme.

What would be the rationale for Government and NEDLAC agreeing on an acceptable minimum wage of R2,000 for ETI, but promulgating a national minimum wage of R3,500?

Hopefully, the new Finance Minister, Tito Mboweni, will let sensibility prevail and make an announcement hereon in his Budget Speech on 20 February 2019.

We would call for the minimum to not just be moved to R3,500 for ETI, thus forcing adherence by employers, but also that the maximum should be given a proper increase.


Jerry Botha
Managing Partner at Tax Consulting SA