President Jacob Zuma on Wednesday signed into law the Employment Tax Incentive Act, to take effect from January 1 – though it will apply to all young workers hired on or after October 1 this year.
The promulgation of the controversial law brings to a close a fierce battle lasting more than two years in which the Congress of South African Trade Unions (Cosatu) fought against it.
The labour federation argued that the initial proposal of a wage subsidy and its replacement, the employment tax incentive, would create a two-tier labour market and result in the displacement of older workers. It has threatened to call a general strike to oppose the law but nothing seems to have come of this threat so far.
The government hopes the law will promote employment for young people and create jobs in special economic zones once legislation providing for them has been promulgated. In terms of the act, employers will receive a tax incentive to employ young workers for a maximum of two years under certain conditions.
“The employment tax incentive aims to share the costs of employment between government and employers,” the Treasury said in a statement on Thursday.
“The incentive will function by decreasing the amount of pay-as-you-earn (PAYE) tax that is payable to the South African Revenue Service (SARS) for every qualifying employee that is hired by the employer. There will be no change in the wages that the employee receives but the effective cost of hiring the employee will be lower, making it more attractive for firms to increase employment.”
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