Employment Tax Incentive Bill passed after three-year battle

The Employment Tax Incentive Bill has finally been passed by Parliament after a three-year battle between the National Treasury and trade unions over the youth wage subsidy. The Bill addresses the high levels of youth unemployment in South Africa by offering a wage subsidy for young workers between the ages of 19 and 29, workers of all ages employed in special economic zones, irrespective of age, and workers of all ages in industries designated at the discretion of the Finance Minister.

During a meeting held on 15 October 2013, National Treasury told the Finance Standing Committee that youth unemployment in South Africa was extremely high by international standards. 2.4 million unemployed people were under the age of 30. According to Statistics South Africa, 69% of unemployed youth were in the age group of 15-19, 51% unemployed youth were in the age group of 20-24, 33% of unemployed youth were in the age group of 25-29 and 25% of unemployed youth were in the age group of 30-34, and 19% of the unemployed were between the ages of 35-39.

The aim of this Act will be to improve employment prospects for young workers over the medium term by giving work experience, and to fund employment in special economic zones and designated industries. It does so by introducing a tax incentive scheme that encourages businesses to give young people a chance at work experience, along with providing for other incentives in special economic zones. The Act aims at bringing all sectors – private sector employers, public sector and designated public entities – on board to deal with this.

Many have welcomed the Bill as a step in the right direction, except COSATU who had opposed it and called for the Bill’s immediate withdrawal, arguing that it would encourage employers to fire experienced workers and replace them with younger ones so they could receive the tax concession. Others were concerned that the R1.3 billion wage subsidy had been decreased from R5 billion when it was first announced by Minister of Finance Pravin Gordhan.

The Treasury acknowledged the concerns raised by trade unions and had made changes to the Bill to address them. Existing labour regulations and legislation like the Labour Relations Act would apply and be enforced to protect workers. Employers who unfairly dismissed workers to access the incentives, would be disqualified. Government, in particular the National Treasury and SARS will closely monitor and evaluate the implementation of the Bill to ensure that there is no abuse of the incentive.

For more information, please see: http://www.pmg.org.za/report/20131015-draft-employment-tax-incentive-bill-public-hearings