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Renewed ETI and PAYE Tax Relief Measures

Renewed ETI and PAYE Tax Relief Measures

Mark Hewitt

The Legislative Amendments can be viewed HERE and the Explanatory Notes to the Legislative Amendments HERE.
The proposed amendments are similar to those enacted in 2020, but are more limited in scope and encapsulate only the following:
  • Expanded Employment Tax Incentive (“ETI”) grant for a four-month period effective 1 August 2021 – 30 November 2021;
  • Deferral of Pay-as-you-earn (“PAYE”) to be paid by employers to the South African Revenue Service (“SARS”) for three months with a settlement period over four months. The PAYE to be deferred is effective 1 August 2021 – 31 October 2021 and the repayment instalments will commence 1 November 2021 – 28 February 2022; and
  • Immediate deferral of excise duties on alcoholic beverages for a period of three months.
 We have provided further insights into the ETI and PAYE tax relief measures below:

1. Expanded ETI for all employers (1 August 2021 – 30 November 2021) 

An additional tax subsidy will be provided to the value of R 750 per month for the next four months for private sector qualifying employees (employees who are of a certain age and earn below R 6,500 per month).
The expanded ETI will work as follows:
  • Increasing the ETI per qualifying employee from R 1 000 to R 1 750 in the first 12 month qualifying period and from R 500 to R 1 250 in the second qualifying 12-month period.
  • For the following four months, ETI of R 750 per employee may be claimed for employees between the ages of 18 to 29 who are past the initial 24-month period or were employed before 1 October 2013.
  • R750 may also be claimed per employee for those between the ages of 30 to 65 who were previously ineligible for an ETI claim due to their age.
  • Any ETI reimbursements will be paid out monthly as opposed to bi-annually.
  • This is not a deferral mechanism and no repayment to SARS is required. The expanded ETI is therefore a permanent cash relief measure, as opposed to the other measures which are merely cash deferral relief measures (repayment is required).
  • The expanded ETI is effective from 1 August 2021, meaning that the EMP201 returns due on 7 September, 7 October, 5 November and 7 December 2021 will be influenced by the increased ETI.
  • It is of paramount importance that those employers using payroll software must install the latest updates while being in the August payroll month and before 7 September 2021.
  • As August 2021 is the first EMP501 reconciling period for FY22 if any ETI is not claimed in the EMP201 return due on 7 September 2021 it would be tedious to try and claim it at a later stage as adjustments to the EMP501 would need to be made and submitted to SARS.
  • Anti-avoidance rules have been included in the Legislative Amendments in order to curb the abuse of these relief measures (refer Explanatory Notes).
Note: The ETI relief measures will only be applicable to employers who are tax compliant and who were registered with SARS as an employer as at 25 June 2021.

2. Deferral of PAYE liability for Small and Medium Business (1 August 2021 – 31 October 2021) 

Employers that have an annual turnover of less than R 100 million will be allowed to delay 35% of the PAYE liabilities for a period of three months. The PAYE relief measure will entail the following:
  • The employer’s gross income may not exceed R 100 million for the year of assessment ending on or after 1 April 2021, but before 1 April 2022.
  • Gross income may not consist of more than 20% passive income (dividends, interest, rental from fixed property [except if this is the primary trading activity], annuities etc.).
  • The deferred PAYE liabilities must be repaid to SARS in equal instalments over a four-month period commencing 1 November 2021 (i.e., first payment to be made on 7 December 2021).
  • No penalties or interest will be levied by SARS in this regard.
  • The employer must be tax compliant in terms of the Tax Administration Act when making the reduced payment.
  • The EMP201 return must be completed as per usual and must not be understated in any way.
  • This is merely a cash flow deferral mechanism, as repayment to SARS is required.
No delay is allowed on the payment of contributions relating to the Unemployment Insurance Fund (“UIF”) or the Skills Development Fund (“SDL”).