As the global economic environment challenges businesses and gives rise to acute unemployment, there is a growing need for governments to find more innovative ways of attracting investors. In South Africa there are several tax incentives and allowances geared to attracting investment and promoting employment creation.
The Employment Tax Incentive (ETI) came into effect on January 1, 2014 and will end on December 31, 2016. The trade union movement argued that the ETI would encourage employers to get rid of the existing employees and replace them with inexperienced young people in order to take advantage of the incentive, and thus it would have no real effect on employment creation. However, existing employees are protected against unfair dismissal. I believe that the ETI can provide a good platform for the employment of inexperienced young people, some of whom have academic qualifications but are unable to find employment due to a lack of practical working experience, which is a crucial factor in the labour market.
The Learnership Allowance was introduced in 2002. It allows employers to claim an allowance in respect of recognised learnership agreements entered into between employers and learners, and is intended to be an incentive for employers to train employees in a regulated environment to encourage skills development and job creation. Eligible training contracts that qualify employers for deduction are those that constitute agreements and apprenticeships registered with Sector Education Training Authority (SETA) established under the Skills Development Act No. 97 of 1988.
The allowance, to be deducted by the employer, concerns annual allowance, completion allowance, learners with disability, reporting requirements and the company income tax return. The conditions for qualifying for the deduction may seem onerous but are worthwhile, considering the generosity of the allowance, especially for organisations that employ a large number of learners. Long delays in registrations with the various SETAs, caused by the administrative burden, resulted in an amendment – effective January 1, 2013 – that any learnership agreement not registered from the inception of the agreement will be deemed to have been registered on the date it was entered into, so long as it is registered within 12 months of the last day of the employer’s year of assessment.
Various reports link South African businesses’ lost competitive edge to continued power outages that disrupt business activities, especially in mining and manufacturing. Although electricity is still relatively cheap, outages are a serious concern for both local businesses and potential foreign investors. It is therefore not surprising that the authorities introduced the innovative incentive contained in Section 12L of the Income Tax Act. Section 12L came into effect on November 1, 2013, and affords a deduction in respect of energy-efficient savings. The deduction is calculated at 45% per KWh or equivalent of energy-efficiency savings. In 2015 the 45% deduction is proposed to be increased to 95%, possibly as a result of scepticism that there is no real benefit in the incentive as the deduction is subject to tax at the corporate rate, which is currently 28%. In our view the taxation of the rebate will be largely neutralised by the proposed increase of the 45% deduction to 95%. The only obstacle will be the process of verifying the energy savings, as there are no organisations or individuals in the country with this capability.
If the available tax incentives and allowances were the main or sole consideration for investors, South Africa would be among the preferred countries. These incentives could help promote trade and business in the country, thereby creating jobs.
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