The draft Bill introducing the Employment Tax Incentive initiative (ETI) was published by National Treasury on 19 September 2013. The Employment Tax Incentive Act No. 26 of 2013 was promulgated on 18 December 2013 and published in the Government Gazette 37185, Notice No. 1032 and came into effect on 1 January 2014.

The Employment Tax Incentive Act gives effect to the announcement by the President in his 2010 State of the Nation Address and Budget that the government will table proposals to subsidise the cost of hiring younger workers.

Due to the fact that many South Africans are excluded from economic activity and as a result suffer from disproportionately from unemployment, discouragement and economic marginalization, government deems it necessary to subsidise the hiring of younger workers. High youth employment means young people are not gaining the skills or experience needed to drive the economy forward which may become a lifelong experience, thereby having long-term adverse effects on the economy.

In response to the high rate of youth unemployment, Government has implemented the ETI incentive mainly aimed at encouraging employers to hire young and less experienced work seekers. Targeting those earning below the personal income tax threshold means that the incentive effectively targets the most vulnerable.

Initially ETI was meant as a temporary programme to stimulate demand for youth workers which would have come to an end on 1 January 2017. However, due to the slow take-up by employers and the high unemployment rate of the youth, the ETI was extended to 28 February 2029.

The main aim of the ETI initiative is to reduce the cost of hiring young people to employers through a cost-sharing mechanism with Government while leaving the wage the employee receives unaffected. It in affect reduces the employers PAYE employees’ tax which is payable when an employer hires a qualifying individual.

The ETI is only applicable to each qualifying individual for a maximum of 24 months (e.g. first 24 qualifying months per qualifying employer from employment date on or after 1 October 2013. Although the qualification looks at the hiring date, it must be noted that SARS introduce a relaxation on this in order to give employers time to take-up get their payroll systems in order and to take-up this incentive.

The incentive also applies within certain Special Economic Zones (SEZ) and designated industries where the age restriction as a qualifying criterion will not apply.

The ETI incentive is administered, monitored and evaluated through the South African Revenue Service (SARS) employees ’tax (PAYE) system.