How to Save on Tax While Growing the Economy
December 03 2019 By Progression
With South Africa's unemployment rate at a shocking 29% (amongst the highest in the world) one of Government's key priorities remains encouraging skills development and job creation. Anso van Eyk, Professional Accountant and owner of EW Accountants, explains that there are a number of tax incentives for business to train and employ people. Section 12(H) of the Income Tax Act allows employers to claim a tax deduction (in addition to any other deductions allowable under the Act) for any registered learnership or apprenticeship, if all the requirements referred to in section 12H are met.
According to Anso, a qualifying employer is entitled to two types of allowances, namely an annual allowance (deductible in any year of assessment during which a learner is a party to a registered learnership agreement) and a completion allowance (deductible in the year in which the learner successfully completes the learnership). In order to further encourage training of people with disabilities, the value of the deduction is higher for a person in this target group. Both the annual and completion allowances vary depending on the NQF level of the qualification as well as whether the person has a disability or not, as follows:
|Qualification Level||Annual Allowance||Completion Allowance|
|Person without a disability||NQF 1-6||R40 000||R40 000|
|NQF 7-10||R20 000||R20 000|
|Person with a disability||NQF 1-6||R60 000||R60 000|
|NQF 7-10||R50 000||R50 000|
Anso goes on to explain that there are further pro-education tax incentives provided for in Section 10(1)(q) of The Act in the form of exemptions for bursaries or scholarships for bona fide study at a recognised institution. There are three different categories of bursaries, based on who they are granted to:
· Bursaries granted to non-employeesare fully exempt
· A Bursary granted to an employeeis exempt if the studies are successfully completed and the employee agrees to reimburse the employer if they fail to complete their studies (except if due to death, ill health or injury)
· Where a bursary is awarded to a relative of an employee,a limited exemption is granted if the employee's remuneration in the previous year of assessment, i.e. the 'remuneration proxy' is R600 000 or less. The exemption is also dependant on the level of the qualification. In addition, from 1 March 2018 increased exemptions were introduced for persons with disabilities. The applicable exemptions are now as follows:
|Qualification Level||Person without a Disability||Person with a Disability|
|Grade R - 12 and NQF 1 - 4||R20 000||R30 000|
|NQF 5 - 10||R60 000||R90 000|
In terms of the reasoning behind the increased exemptions, Anso explains, "The costs incurred in order to educate a person with a disability are generally higher than those associated with able-bodies students and learners." These increased incentives for persons with disabilities are likely to boost the funding of studies for this important target group.
Another subsidy available is the Employment Tax Incentive (ETI) which was introduced in January 2014 in order to address the high youth unemployment rate in the country and encourage employment of young job seekers. The ETI effectively reduces the cost of employing a young person through a cost-sharing mechanism with Government by allowing an employer to reduce the amount of PAYE paid, while leaving the employee's salary unchanged.
An employer must be registered for PAYE and also be tax compliant in order to qualify for the ETI. Anso confirms that in order to meet the requirements, an employee must be between 18 and 29 years of age, have a valid South African ID document or asylum seeker permit, not be a domestic worker or related/connected to the employer and earn at least R2 000 per month but a maximum of R6 500 per month. The Employee must also have been employed on or after 1 October 2013.
The value of the ETI that may be claimed depends on the value of the monthly remuneration paid, as per the table below:
|Monthly remuneration||Year 1||Year 2|
|ETI per month during first 12 months||ETI per month during next 12 months|
|Less than R2 000||50% of monthly remuneration||25% of monthly remuneration|
|R2 000 or more but less than R4 500||R1000||R500|
|R4 500 or more but less than R6 500||Formula: R1 000 - (0.5 x monthly remuneration - R4 500)||Formula: R500 - (0.25 x monthly remuneration - R4 500)|
|R6 500 or more||Nil||Nil|
Both the ETI as well as the allowance in terms of learnership agreements have been extended beyond their initial expiry dates (the ETI has been extended to 28 February 2029 and learnership allowance has been extended to all agreements entered into before 1 April 2022), confirming Government's ongoing commitment to skills development and job creation. One hopes that these measures will continue to encourage employers to invest in education and employment, as key factors to driving the South African economy forward.