Employment Tax Incentive Act Amendments – Curbing ETI Abuse
Before discussing the details of the amendments to the ETI Act (Employment Tax Incentive Act) to curb ETI abuse that are effective from 1 March 2022, I would like to thank National Treasury for their help from a policy perspective, and to thank SARS for putting up with my many emails, for their support during the past weeks, and for their clarification of the new ETI requirements. Included in the appendix to this Newsflash is the result of our discussions with SARS in the form of an NBPO (Non-Binding Private Opinion) that was issued by SARS dated 7 March 2022. The issuing of the NBPO was followed by an investigation by the PAGSA Exco into the practical application of the NBPO, resulting in an example of the calculation of ETI ‘monthly remuneration’ that is included, after approval by SARS, in a later section of this newsflash as guidance for the payroll supplier members of the PAGSA. The correct calculation of ETI ‘monthly remuneration’ is of huge importance to all parties. If ‘monthly remuneration’ is incorrectly calculated, the ETI amount will be calculated incorrectly, resulting in an incorrect reduction of the employer’s PAYE liability on the EMP201. Apologies to our payroll supplier members that it has taken some time to reach the point where we are now with this Newsflash. It has been a difficult time for payroll suppliers – how can you change a payroll system when you don’t know what the changes are? The challenges that payroll suppliers face with the timeous implementation of the new ETI requirements has been formally communicated to SARS by the PAGSA. The final changes to the ETI Act were made in October/November 2021 by the Standing Committee on Finance and were published in the TLAA (Taxation Laws Amendment Act) that was issued on 19 January 2022, accompanied by a final Explanatory Memorandum that was issued a week later on 25 January 2022. The limited amount of time available between the publication of the TLAA on 19 January 2022 and the effective date of 1 March 2022, coupled to the fact that ETI is calculated monthly, has put a lot of pressure on everybody. Purpose of the ETI Act
The purpose of the ETI Act is to encourage employers to hire young people between the ages of 18 and 29 by subsidising their wage cost. The ETI is therefore an employment incentive, not a training incentive. As an aside, Government subsidises the cost of training employees in two ways that I am aware of:
1.Learnership Incentive (Allowance)
If the studies are in the form of a SETA-provided learnership in terms of the Skills Development Act, the Learnership Incentive (as it is now called) has been available from 2001 to assist employers with these costs. 2.Bursaries and Scholarships
Bursary schemes reduce the taxable value of the fringe benefit that results from the payment by the employer on behalf of the employee to a recognised training institution for the training of either the employee, or the relatives of the employee. The bursary training expenses paid by the employer on behalf of the employee are allowed as a deduction in the hands of the employer. Background to ‘ETI Schemes’
Several years ago SARS became aware of what is now referred to as ‘ETI Schemes’, and after investigation, the action that Treasury and SARS decided to take first appeared in the public domain in the 2021 Budget Review, as follows:
“Some taxpayers have devised certain schemes using training institutions to claim the ETI for students. To counter this abuse, it is proposed that the definition of an “employee” be changed in the Employment Tax Incentive Act (2013) to specify that work must be performed in terms of an employment contract that adheres to record‐keeping provisions in accordance with the Basic Conditions of Employment Act (1997). The Problem with ‘ETI Schemes’
According to the final Explanatory Memorandum issued by National Treasury and SARS on 25 January 2022, these schemes while varying in nature, are broadly along the following lines. 75 of 1997). As soon as we get clarity, a Newsflash will be issued.