Changes to the ETI Formulas to Increase the Value of the Employment Tax Incentive
In the Budget Review of 23 February 2022, the Minister of Finance announced changes to the ETI calculation formulae that increase the value of the ETI amount by up to 50%, effective from 1 March 2022. First some background. SONA Announcement
The State President in his State of the Nation Address earlier in February 2022 announced as follows:
1.“To encourage hiring by smaller businesses, we will be increasing the value and expanding the criteria for participation in the Employment Tax Incentive.”, and
2.“The changes to the incentive will make it easier for small businesses in particular to hire young people.”
I have underlined the three sets of wording to put focus on what appears to be the intention in the SONA to change three areas of the ETI Act. This wording is repeated in Chapter 4 of the 2022 Budget Review. As matter stand, only the “increasing the value” part of this intention has been turned into legislation by changing the ETI formulae from 1 March 2022 by announcement in the 2022 Budget. The ‘suggested’ changes to the other two areas of the ETI Act will presumably be addressed later during the year. Refer to PAGSA Newsflash 2022-05 for a short discussion of the SONA announcement. 2022 Budget Review
The 2022 Budget Review has put the SONA announcement of the ETI increase into immediate operation by:
1.Including the new ETI calculation formulae in the 2022 draft Rates Bill (the Rates and Monetary Amounts and Amendment of Revenue Laws Bill)
2.Making the new ETI calculation formulae effective from 1 March 2022. Note that section 7A of the ETI Act allows the Minister of Finance to propose changes to sections 4, 5, 6, or 7 of the ETI Act in the Budget Review and to also propose an effective date for these changes (in this case, 1 March 2022). The changes are legal for a period of 12 months from the proposed effective date if the proposed changes to the ETI Act are promulgated within that 12-month period. The ETI calculation formulae are specified in section 7 of the ETI Act, and the new formulae have already been issued in the draft Rates Bill that will be promulgated within the next 12 months, so this aspect of the change is legal (unlike the proposal in the 2021 Budget to increase the UIF contributions limit from 1 March 2021). The Budget proposed an increase to the value of the ETI of up to 50% to encourage employers to participate in the ETI project, and by so doing, help to reduce the extremely high levels of unemployment amongst young people. Change to the ETI Calculation Formulae
Unfortunately, the ETI calculation formulae specified in the Rates Bill that was issued on 23 February, are incorrect. This was pointed out by a wide-awake member of the PAGSA Exco, taken to the authorities by the PAGSA, and after a flurry of discussions, resulted in the Rates Bill of 23 February being withdrawn and replaced by a new Rates Bill on 25 February 2022 that specifies the correct ETI formulae. The error in the Rates Bill of 23 February 2022 is that the percentages in the formulae in the ‘R4,500 to R6,500’ bracket for both the first and the second 12 months, were not increased by 50% as were the other elements of the formulae. These percentages remained (incorrectly) the same at 50% and 25% respectively. The ETI formulae in the Rates Bill of 25 February 2022 are now correct. The old formulae up to 28 February 2022, and the new (correct) formulae from 1 March 2022, are set out in the two tables below. Incidentally, the incorrect formulae would have resulted in far more ETI being calculated than what the policymakers envisaged with the changes, so correcting this error has saved the fiscus a considerable amount of money. Tax Certificate Reporting Of the monthly ETI information
PAYE BRS version 21.0.0 provides the rules for tax certificate submissions by payrolls for the 2023 tax year (i.e. from 1 March 2022 up to 28 February 2023) and was issued a few days before the Budget announced the ‘up to 50%’ increase to the value of the ETI amount.