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Explanatory Memorandum on ETI 2013

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The draft bill on employment tax incentive:

The Draft Employment Tax Incentive Bill gives effect to the announcement by the President in his 2010 State of the Nation Address, and the 2010 Budget, that government will table proposals to subsidise the cost of hiring younger workers. The draft bill also gives effect to the 2013 Budget.

 

Many South Africans are excluded from economic activity, and as a result suffer disproportionately from unemployment, discouragement and economic marginalisation. High youth unemployment means young people are not gaining the skills or experience needed to drive the economy forward. This lack of skills can easily become a lifelong experience, thereby having long-term adverse effects on the economy.

In South Africa’s labour market, the current lack of skills and experience as well as perceptions regarding the restrictiveness of labour regulations, make some prospective employers reluctant to hire youth who may lack experience or qualifications. Given that the private sector contributes about 82 per cent of GDP, and employs over 70 per cent of those in formal employment outside of agriculture, it is critical that in order to have the biggest impact, this involves the private sector.

The incentive seeks to do exactly this.

In response to the high rate of youth unemployment, Government wishes to implement an incentive mainly aimed at encouraging employers to hire young and less experienced work seekers, as stated in the National Development Plan. The incentive is one among many that will fall under the umbrella of Government's youth employment strategy, the National Youth Accord, which outlines a programme of action to address youth unemployment.

Commitment 6 under the accord calls for the development of support and incentive mechanisms to expand the intake of young workers by the private sector. This incentive will complement existing government programmes, such as the Expanded Public Works Programme and Community Work Programme, skills development under the auspices of the Further Education and Training colleges, the Sector Education and Training Authorities, the National Skills Fund and programmes that support enterprise development under the Industrial Policy Action Plan.

Getting that first job is crucial. Data from the “Matched Labour Force Survey” indicates that young unemployed people with previous work experience are three times more likely to find a job than those who have none. Targeting those earning below the personal income tax threshold means that the incentive effectively targets the most vulnerable. An employment incentive aimed at youth employment can therefore have significant advantages, and would form part of a holistic programme of policies to address the causes and consequences of youth unemployment.

The incentive is meant as a temporary programme to stimulate demand for young workers, and this incentive cannot possibly address all structural issues in the youth labour market. The first phase of the incentive is intended to be simple and easy to implement using existing tax administration platforms. National Treasury and the South African Revenue Service will monitor the incentive closely to evaluate the impact. After a review of the effectiveness and impact of the incentive after two years, the second phase can include additional policy features and possible refinement.

Download DRAFT EMPLOYMENT TAX INCENTIVE BILL, 2013.

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Guest Thursday, 14 November 2019

Making a difference

The reason we help companies claim ETI is because we want to create opportunities for youth to find employment. If we can employ the youth, over 40% of whom are unemployed, we will make a significant difference in improving their lives and the state of the economy. Read more about ETI

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