COVID-19 Lockdown: Employment Tax Incentive (“ETI”) relief
Treasury is expanding the ETI program for a limited period of 4 months in order to minimise the loss of jobs as a consequence of the 21 day lockdown period which commenced on 27 March 2020.
- Effective date (period for which this relief is available) – 1 April 2020 to 31 July 2020.
- Requirements – must be registered with SARS for ETI at 1 March 2020
- Compliance – tax returns may not be in arrears and there must be no outstanding debt with SARS (unless there is some arrangement with SARS or the debt is less than R100.
- Expanded age criteria only applies for the period 1 April 2020 to 31 July 2020
Currently the relief provides that employers will be able to claim additional ETI relief for remuneration payable from 1 April 2020 to 31 July 2020 as follows:
- Increasing the maximum amount of ETI claimable during this four month period for employees eligible under the current ETI Act from:
- R1 000 to R1 500 in the first qualifying 12 months, and from
- R500 to R1 000 in the second 12 qualifying months
- Allowing a monthly ETI claim in the amount of R500 during this 4 month period for employees from the ages of:
- 18 to 29 who are no longer eligible for the ETI as the employer has already claimed ETI in respect of those employees for 24 months; and (new criteria)
- 30 to 65 who are not eligible for the ETI because of their age. (new expanded age )
- Accelerating the payment of employment ETI reimbursements from twice a year to monthly in order to get cash into the hands of tax compliant employers as soon as possible for the 4 month period from 1 April 2020 to 31 July 2020.
The following two examples come from Treasury’s publication on the subject.
|Employer has 10 employees that meet the criteria and each employee earns R4 500 per month||R 10 000||R 15 000|
The employer can retain up to an additional R5 000 from the employer’s PAYE liability each month between April and July.
Employer B has 3 workers:
- the employer claims the ETI for Employee A,
- the employer exhausted ETI claims for 27-year-old Employee B two years ago, and
- Employee C is 34 years old and has never been a qualifying employee.
The employees each earn R4 500 per month.
Employer B will be able to retain R2 500 per month.
Since these are the only 3 workers, the amount will likely be claimed as a reimbursement from SARS.
|Employee A||R 4 500||R 1 000||R 1 500|
|Employee B||R 4 500||R 0||R 500|
|Employee C||R 4 500||R 0||R 500|
|Totals||R 13 500||R 1 000||R 2 500|
Background – ETI
The Employment Tax Incentive (ETI) programme was introduced in January 2014 to promote employment, particularly of young workers.
The main aim of the programme is to reduce the cost of hiring young people between the ages of 18 and 29 (also referred to as qualifying employees) through a cost sharing mechanism with Government, by allowing the employer to reduce the amount of employees’ tax (PAYE) they pay to the South African Revenue Service (SARS), while leaving the wage received by the qualifying employees unaffected.
The ETI programme makes provision for the employer to claim the ETI in respect of a qualifying employee:
- who is between the ages of 18 and 29, and
- has a monthly remuneration of less than R6 500.
The maximum monthly ETI claimable per qualifying employee is limited to R1 000 in the first year of employment and R500 in the second year of employment.
Further to the above, the monthly ETI can only be claimed for the first 24 months of the qualifying employee’s employment by an employer or associated institutions.