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South Africa Extends Employment, Learnership Incentives

Tuesday, September 27, 2016

The South African National Treasury has published further proposed changes to the draft 2016 Taxation Laws Amendment Bill (TLAB) for public comment, including amendments relating to the employment tax incentive (ETI) and the learnership tax incentive (LTI).

Without further legislative amendments, the ETI will expire on December 31, 2016, and the LTI on September 30, 2016.

The National Treasury indicated that take up of the ETI has been strong since its introduction in January 2014. The total value of claims between January 1, 2014 and March 31, 2016, was over ZAR6bn (USD437.4m), substantially exceeding expectations.

The ETI aims to stimulate the employment of 18- to 29-year-olds by reducing the costs associated with hiring younger workers. It decreases the amount of pay-as-you-earn tax payable for each qualifying employee hired by the employer.

Employers can claim the (maximum 50 percent) ETI on a sliding scale for any employee receiving a salary of less than ZAR6,000 a month. The ETI's value decreases by half during the second year of employment, and an employer may only claim the incentive for a two-year period for each employee.

It is now proposed that the ETI would be extended for another two years until February 28, 2019. The draft amendment also proposes a monetary cap of ZAR20m on the value of ETI claims per employer per year, "to more effectively target the incentive towards those employers that are creating new jobs, and to also mitigate the total tax revenues forgone."

With regard to the LTI, a recent review found that it has provided positive support to training and skills development in South Africa. The program supported almost 448,000 learnerships between 2009 and 2014.

Up to September 30 this year, all employers can apply a tax deduction of ZAR30,000 per "learner" (or ZAR50,000 for a learner with disability) on both the commencement and completion of three-year registered Learnership Agreements.

The planned changes are that the LTI should be extended from October 1, 2016, for another five years to March 31, 2022, with adjustments to the value of the deduction based on the qualification level of the learner when entering into a learnership agreement. The value of the deduction would vary between ZAR20,000 and ZAR40,000.

The new draft TLAB also contains revised clauses related to interest-free loans to trusts and restricted equity shares for employee share schemes, to take account of public comments received regarding its first draft.

The proposal on interest free loans to trusts now deems the interest that is not paid by the trust to be a donation in the hands of the lender (as opposed to deemed income), while the suggestion that dividend payments derived from restricted equity shares should be taxed at marginal personal income tax rates (instead of at the dividend withholding tax rate) has been postponed and replaced with specific anti-avoidance measures.

Written comments on the updated draft TLAB are requested by the close of business on October 10, 2016.