Employment tax incentive proposed by Treasury

Wednesday, February 27, 2013

Cape Town – The Minister of Finance Pravin Gordhan today proposed an employment tax incentive for young, first-time workers, which will use a new graduated formula and will replace the contested youth wage subsidy announced by Gordhan in the 2011 Budget.

Presenting the Budget Speech in the National Assembly today, Gordhan also revealed plans for several tax incentives for special economic zones (SEZs).

He also announced personal income tax relief of R7 billion, and tax relief of a further R350 million with adjustments to the medical tax credit.

An overall increase of 23c per litre in fuel levies will made in April, while excise duties on alcohol and tobacco products will increase by between 5.7 percent and 10 percent.

Further tax relief for small businesses, including an increase in the monetary thresholds of Graduated Tax for small business corporations, has also been proposed.

On the employment tax incentive for young, first-time workers, the Budget Review says the incentive, which will amount to R500 million in tax relief once implemented, will operate using a graduated tax incentive at the entry-level wage, falling to zero when earnings reach the personal income tax threshold.

Protection provided by the existing labour legislation, combined with oversight by the South African Revenue Service (Sars) and the Department of Labour will ensure that employers don’t replace older workers in favour of first-time workers just to take advantage of the tax incentive.

A similar tax incentive will be made available to eligible workers of all ages within SEZs. This will allow employers to make a tax deduction for employing workers earning less than R60 000 a year.

The Budget Review also contains a proposal that businesses based in SEZs be subject to a 15% corporate tax rate, almost half that of South Africa’s current corporate tax rate of 28%.

Added to this an accelerated depreciation for buildings in these areas based on the existing tax regime for urban development zones, to encourage developers to invest more in industrial premises.

The revised tax revenue collection for 2012/13 is R810.2 billion – R16.3 billion lower than the estimate made in last year’s budget.

Most of this was owing to lower than expected collections from personal income tax – R12 billion less than was estimated last year – and corporate income tax – under by R11.5 billion.

This was only partly offset by VAT collections exceeding estimated takings by R7.3 billion.

Gordhan attributed this to weak economic growth during the second half of last year, labour unrest and lower commodity prices.

However, he said tax revenues are expected to improve over the next three years in line with higher economic growth.

He said 700 taxpayers had so far made use of the voluntary disclosure programme which came into effect last year on October 1.

Tax of more than R200 million will be collected before the end of next month, he said.

He said working with the National Treasury and with the help of the government payment system, the Sars has identified a number of companies that have received payments from government but that have not declared their full income to the Receiver.

These companies are being audited and others will follow, he said, adding that the intervention will be underpinned by the reform of the tax clearance certificate process which he announced in October.

Sars was also working with the Department of Home Affairs and other agencies to register small and micro enterprises owned by foreigners.

The Receiver last year made a total of 1 531 seizures of goods to the value of almost R152 million in connection with customs duty fraud, smuggling, counterfeiting and tax evasion.

He said in the near future, Sars will introduce a single registration process in which companies will be able to register in a once-off manner for all tax types and custom activities.

There are also plans to introduce a new company income tax requiring fewer fields to be completed by smaller businesses. – SAnews.gov.za