The Employment Tax Incentive (ETI) calculation formulae have been changed to increase the value of the incentive by up to 50%, effective from 1 March 2022. This change was announced in the 2022 Budget Review, following the State President’s announcement in his State of the Nation Address in February 2022. The changes to the ETI Act are legal for a period of 12 months from the proposed effective date, if the proposed changes are promulgated within that 12-month period.

The incorrect ETI calculation formulae were specified in the Rates Bill issued on 23 February 2022, but were corrected in the new Rates Bill issued on 25 February 2022. The old formulae were in operation up to 28 February 2022, while the new formulae are effective from 1 March 2022. The incorrect formulae would have resulted in 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.

The changes to the ETI formulae and the definition of “monthly remuneration” in the ETI Act were released in a rushed manner, leaving payroll suppliers with very little time to change, test, and issue payroll to clients before the first ETI calculation runs for March. If the rollout of the new ETI formula to clients is delayed, this might cause problems with mid-year and/or final tax year submissions later in the year.

Two issues resulting from the changes made by the final Taxation Laws Amendment Act still need to be resolved by SARS. These issues concern the exclusion of fringe benefits from ETI monthly remuneration and the application of BCEA section 34(1)(b) deductions to ETI monthly remuneration. SARS has indicated that “an amount other than a cash amount” refers to all fringe benefits in the 38xx range of tax certificate codes.

For more information, visit https://www.pagsa.org.za/2023/06/10/nf-2022-11-increase-to-the-eti-value/.