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Cape Town – A proposed employment tax incentive to reduce the cost to employers of hiring young people is one step closer. 

Cabinet approved the publication for public comment of the Draft Employment Tax Incentive Bill last week.

This bill is aimed at encouraging employers to give young people their first job experience as well as boost employment by firms operating in the Special Economic Zones (SEZs).

The proposed employment tax incentive will reduce the cost to employers of hiring young people through a cost-sharing mechanism with government, while leaving the wage the employee receives unaffected.

Employers who are registered for tax will be eligible to decrease their Paye employees’ tax that is payable for hiring a qualifying individual.

These employees must be between the ages of 19 and 29, possess a South African ID and must receive a salary that is between the minimum wage for that specific sector and R6 000 per month.

A minimum of R2 000 applies where no sectoral determination is applicable.

The employee cannot be related or connected to the employer in any way and domestic workers will not be eligible for the incentive.

The incentive will be available for the first two years of employment. The incentive will also apply within SEZs and designated industries where the age restriction will not apply.

Public entities identified by the minister of finance in regulation can also be eligible.

The employment incentive was first announced by President Jacob Zuma in the 2010 State of Nation address. 

According to the National Treasury the background to the employment incentive is that millions of young South Africans are excluded from economic activity.

“As a result the youth suffer disproportionately from unemployment, discouragement and economic marginalisation,” according to Treasury.

“High youth unemployment means young people are not gaining the skills or experience needed to drive the economy forward. This lack of skills can have long-term adverse effects on the economy.”

In South Africa’s labour market, the current lack of skills and experience as well as perceptions regarding the restrictiveness of labour regulations make some prospective employers reluctant to hire youth, according to Treasury.

“Given that the private sector contributes about 82% towards Gross Domestic Product (GDP) and employs over 70% of those in formal employment outside of agriculture, it is critical that the sector be involved in order to have the biggest impact on joblessness. The incentive seeks to do exactly this,” Treasury said in a statement issued on Friday.

After a review of the effectiveness and impact of the incentive after two years, the second phase could include additional policy features and possible refinement.

The incentive is expected to commence on January 1 2014.

Employers will be able to claim the incentive for employment that commences after October 1 2013.

This incentive will complement existing government programmes, such as the Expanded Public Works Programme and Community Work Programme and the National Skills Fund and programmes.

This article first appeared on the Fin24 website