Finance: Employment tax incentive abuse in Treasury sights

The Treasury is proposing to stamp out abuse of the employment tax incentive to prevent employers claiming it on behalf of trainees rather than full-time employees. SARS head of legislative policy Franz Tomasek said the abuse was widespread, notes a Business Day report. In August 2020 the SA Institute of Chartered Accountants and SA Institute of Tax Practitioners deplored the marketing of abusive schemes that involve a recruiting agency, an employer, and a training institute. They create the appearance of genuine employment so that claims for the incentive can be made on behalf of trainees. The two bodies said the promoters of these schemes ‘are using the desperation of businesses in the current economic fallout to increase their gains’ and alerted the Treasury and SARS to the abuse.

The proposal to clamp down on the abuse is contained in the draft Tax Laws Administration Bill, released in July by the Treasury for public comment. Treasury officials briefed Parliament’s Finance Committee yesterday on the draft Bill, which contains proposed amendments dealing with personal and corporate income tax. The Treasury proposes to amend the Employment Tax Incentive Act to clarify that ‘substance over legal form’ will be considered when assessing an employer’s ability to claim the incentive. This will ensure that work is actually being performed in terms of an employment contract with the employee, who must be documented in the employer’s records as required by the Basic Conditions of Employment Act.