The good, the bad and the ETI

ETI - A Brief Introduction

One of the greatest challenges faced by South Africa is the high unemployment rate, which especially impacts the youth. High levels of unemployment have a profound impact on the socio-economic fabric of South Africa as a society.

In this year’s State of the Nation Address (SONA), President Cyril Ramaphosa emphasised the role of government in helping businesses thrive so that they can create much-needed jobs in South Africa. What is of great concern is the growing number of unemployed young people, particularly those without tertiary training or education. The Quarterly Labour Force Survey states youth aged 15-24 years and 25-34 years recorded the highest unemployment rates of 60,7% and 39,8% respectively. Even by emerging market economy standards, that figure is staggeringly high.

However, there is an existing and vastly underutilised business tax benefit to encourage employers to assist the unemployed and uneducated youth of South Africa, especially those in rural areas. It’s called the Employment Tax Incentive (ETI), and it’s one of the most powerful SME tax benefits there is!

How can you and your business help reduce the high number of unemployed youths? The answer is simple; external ETI.

The ETI reduces your (the employer’s) overall Pay As You Earn (PAYE) contribution without affecting individual employee wages. In his 2022 Budget Speech, Finance Minister Enoch Godongwana announced an increase in the ETI values from 1 March 2022 from R1,000 to R1,500.

How does the ETI work?

Let’s say your monthly PAYE is R20,000 and 5 unemployed youths are allocated to your business, thanks to the ETI, you can deduct the equivalent of R7,500 from your overall monthly PAYE liability for 12 months. The ETI is administered by the employer, they simply deduct the total ETI calculated by the payroll system for the month from the total PAYE payable to SARS.

For cash-conscious SMEs, the ETI can provide a helpful return on employment that can be invested back into the business

The ETI is a widely beneficial tax benefit: employers are rewarded for empowering young people, and young people gain valuable work skills and experience. As a result, the private sector grows, and the economy strengthens. And yet, few companies are aware of External ETI and how it works. According to research by Sage, it was found that only 52% of SMEs currently take advantage of the ETI.

What’s stopping the rest?