SARS giveth and SARS taketh away

The alarmingly high unemployment rate in South Africa has given rise to several tax incentives for employers to grow their workforces. One of these is the Employment Tax Incentive (ETI) contained in the ETI Act 26 of 2013 (ETI Act). However, with new incentives come new issues, and in recent years SARS and National Treasury have clamped down on what they perceive to be abuses of the ETI Act by some employers.

10 Mar 2024 2 min read Article

Specifically, two amendments to the ETI Act have occurred. The first tightened the definition of an “employee” in section 1 of the ETI Act, with effect from 1 March 2022 by, amongst other things, including certain record-keeping requirements for employers and ensuring that employees actively assist in carrying on or conducting the business of the employer. The second amendment brought the ETI Act within the ambit of the TAA to trigger understatement penalties in terms thereof, with this amendment coming into operation from 1 September 2022.

As announced in the Budget, National Treasury intends to support the amendments already made to the ETI Act with legislatively refined punitive measures. Given that the previous amendment to the ETI Act was aimed at triggering understatement penalties under the TAA, the refinement of further punitive measures suggests more penalties.

Implementing these punitive measures may include the ETI Act triggering additional penalties in terms of the TAA, or under the Fourth Schedule to the ITA. It may also include the introduction of a targeted penalty (over and above that already prescribed in section 5 of the ETI Act) to address perceived abuse of the ETI Act. There may also be other punitive measures not linked to penalties.

Whichever way National Treasury (and SARS) decides to go, employers claiming ETIs would be best advised to tread carefully.

That being said, the Budget did not only bring bad news for employers.

It also included the announcement of a further extension of three years for section 12H of the ITA. This provision allows employers to claim learnership tax incentives, which greatly assists in upskilling and activating the labour market in South Africa. However, under its sunset clause, it was due to expire this year. Employers will now enjoy a further three years in which to claim these incentives, which will be welcomed. During this period, Government will evaluate the merit of the provision’s continued existence.

Every cloud has a silver lining, but so too does every silver lining have a cloud. The further extension of section 12H points towards a continuing need to promote job creation in a climate of persistently high unemployment. Growing the workforce ultimately depends on economic growth. Without this economic growth and increased employment, the tax base will continue to shrink, which will have further negative knock-on effects.

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