This document provides an overview of the Employment Tax Incentive (ETI) in South Africa. It discusses the history and requirements of the ETI, outlines the complex calculations involved, and highlights common misconceptions. The presentation notes the many resources available to understand the ETI and emphasizes that correctly claiming the incentive requires specialized technical knowledge. It analyzes scenarios of fully utilizing the ETI benefit versus only offsetting tax payments with it. The document stresses getting calculations and compliance precisely right to avoid penalties from SARS audits during the reimbursement process.

1. Employment Tax
Incentive - ETI
Gareth Hardy
2 December 2015

2. Disclaimer
• This is an informative presentation on our experience
relating to ETI.
• Nothing in this presentation should be construed as
constituting tax advice or a tax opinion. An expert should
be consulted for advice based on the facts and
circumstances of each transaction/case.
• Even though great care has been taken to ensure the
accuracy of the material, the presenters do not accept any
responsibility for consequences of decisions taken based on
the material. It remains your own responsibility to consult
the relevant primary resources when taking a decision
• We do offer professional services relating to ETI.

3. ETI Webinar – Overview
• Short History
• Requirements
• Calculations
• Misconceptions
• Complexity
• Getting it wrong
• Payroll limitations
• Easyfile
• ETI – A case study (Todays Focus – Practical Application)
• ETI – Reimbursement of refund?

4. ETI – A short history
• ETI introduced by National Treasury to combat
unemployment, skills shortage and create new jobs.
• ETIA 26 of 2013 came into effect 1 January 2014.
• ETIA own definitions, many of these contained in other
Acts.
• ETI poorly communicated, complex, misunderstood – slow
uptake – millions forfeited - deemed by many uneconomical
to use.
• 2015 –SARS announces ETI reimbursement process in
place and working.
• Refund process poorly communicated, misunderstood, slow
uptake…History to repeat itself?

5. ETI Resources - Available
information
• Employment Tax Incentive Act 26 of 2013
• SARS – Draft Guide to the Employment Tax Incentive
(Closed for comments 16 October 2015) - Most useful
• SARS website
• SARS Business Requirements Specifications
• Professional bodies - SAIT
• Payroll guides
• Various National Treasury and SARS presentations
• Media
• Todays webinar based on consolidation of above

6. ETI In a nutshell
• Incentive is for the employer (Qualifying Employer)
• Calculated using a formula submitted monthly with your
EMP 201.
• ETI benefit used as a credit against your PAYE.
• Formula calculation based on “qualifying employees” i.e.
per person per month.
• Available for 24 months.
• ETI Reimbursements every 6 months.
• ETI benefits are tax neutral.
• 28 ETI tax critical events
• Available 1 January 2014 to date, ends 1 January 2017.

7. ETI – Must haves – Quick
Summary
• Qualifying Employer
– Registered for PAYE
– Commercial companies
(Government bodies
usually excluded)
Qualifying Employer
• ETI – Tax compliant
• Be able to calculate ETI
correctly each month.
• Qualifying Employees
– SA Citizen, Green ID book
– Aged 18 to 29
• Earns between R2 000 to
R6 000 p.m.
• Benefit R1000/R500
• Meets minimum wage
requirements.
• Employed on or after 1
October 2013.
• Have sufficient source
documents

8. ETI – How it works
• ETI is a self assessment return (Much like other taxes,
SARS rely on YOU to get right).
• Every month you calculate how much PAYE is due to SARS.
• You then would run a separate report to see what your
“Calculated ETI” should be. You offset the “Calculated ETI”
against what you would have been liable to pay.
• Complete EMP 201 and submit to SARS.
• You receive your ETI benefit immediately.
• Complete and submit EMP 501’s.
• You automatically receive re-imbursement.
• ETI is easy, right?

9. ETI Compliance
• A tax clearance certificate is NOT ETI compliance
• Compliance is measured on the day of submission
• Detailed knowledge of the Tax Administration Act required
in regard to these aspects.
• An employer will not be eligible to claim the ETI in a month
if the employer has –
– any outstanding tax returns or
– A tax debt

10. ETI is easy – NO
Complicated calculations
• In principle simple, in practice extremely complex
• Calculation done per qualifying employee per month
• Stages of computation:
– ETL (Extract, Transform, Load). Loads data into computational
engine from HR data dump.
– Employee validation:
• - Employment date
• - Age at beginning of period
• - Disqualifiers (Domestic Workers, Asylum seekers
etc.)
• Record creation: Creates and readies data records for
computation. For each employee, for each month.

11. ETI is easy – NO
Complicated Calculations
• Record Creation continued….
– Age validated each month.
– Remuneration per employee per month calculated (Includes
apportionment)
• Calculation
– Apply SARS ETI formula to extracted data
– Includes number of months ETI has been claimed for that
employee previously (Just because they qualified doesn’t
mean you claimed).
• Insert ETI data into payroll output to E@syFile, thereby
reconciling submission with EMP201 and EMP501
• Generate detailed reports, including SARS audit reports.

12. Getting it wrong
• Example: Company A normally owes R500 000 each month
for PAYE. Payroll calculates ETI for March at R1 200 000.
They pay nothing to SARS, ETI is greater than PAYE.
• SARS audit your March return 5 months later. At the time
you submitted March you owed SARS R10 000 in VAT which
you resolved in April. SARS were wrong with their VAT
assessment. What happens now?

13. Getting it wrong… what it means
• SARS raises an assessment for R500 000 + penalty of R50 000
and interest on top of that. All your PAYE returns are now
wrong from April to August, your half year reconciliation
submitted is wrong and, worst of all…….
• You may calculate your ETI but may not utilise it going forward
until you have paid them the outstanding balance.
• No problem you say, SARS can set off the R550 000 against
my ETI. Unfortunately not – it doesn’t work that way. – You
may not offset ETI against a tax debt. More importantly, you
can never offset tax penalties against ETI or interest charged
• Good news, this situation is easy to avoid.
• Send the correct correspondence to SARS before submitting
your ETI

14. ETI – A case study
• Can you claim more than your PAYE?
• Is it really worth the admin of claiming ETI.
• Is your ETI calculated correctly?
• Refund or re-imbursement?
• Reasons for ETI re-imbursement?
• You decide

15. ETI Case Study, Facts
• February 2015 Started with the claims process included 20
periods. Jan 14 to August 2015.
• Claim audited for 2½ months by SARS Specialist ETI audit
team
• September 2015 Audit outcome: No Adjustments,
approved for refund
• November 2015 – Claim paid out
• +- 10 months from beginning to end (There are still certain
outstanding matters)

16. ETI SARS audit
• Information requested in .csv format or excel.
• Audit period = All ETI claims submitted
• Audit information requested
• All calculations
• Contracts of employment

17. ETI Cash Benefit analysis
• Assume a R1 000 000 PAYE liability for the periods.
• Your total ETI benefit is R3 644
• Your start off base is negative i.e.
PAYE - R1 000 000 – you would have to pay to SARS
• Using ETI credit offset mechanism:
Your PAYE is covered by your ETI R1 000 000, up by R1 00
000
ETI benefit fully utilised, up by R3 644 000 – (cash) that
gets deposited into your bank account tax free.
• Does it matter when you start claiming - Yes

18. ETI Cash benefit analysis
Details No ETI
claimed
Only ETI
credit
mechanism
offset
Full ETI
claimed
Amount
of tax
payable
ETI Benefit -1 000 000 +1 000 000 R +3 644 000 R0

19. ETI Refund Analysis Graph
0
50,000
100,000
150,000
200,000
250,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
ETI Comparison
ETI Full Utlised ETI credit offset mechanism only

20. ETI Refunds – Challenges if you
claim
• SARS are in process of putting re-imbursement procedures
in place.
• Expect a rigorous audit from SARS, have your audit packs
ready and check your calculations.
• Ensure your staff have sufficient technical knowledge to
deal with the refund and answer questions.
• Know the difference between ETI compliance and a tax
clearance certificate compliance.
• Literally hundreds of hours corresponding.
• The process will put additional pressure on your internal
resources during EMP 501 filing season.
• Only 2 more ETI re-imbursement opportunities.

21. Claiming your re-imbursement
• Critical! Get the calculations right.
• Payroll software works however is hampered cut-off
periods, relies on user input, inconsistencies.
• Excel – Limitations –Very hard to manage and apply rules
consistently
• We use a ETI system which is a stand alone and purpose
built. Interfaces with payroll, e@syfile and generates the
necessary SARS audit reports
• On average generates 260 records per employee per month
and is not affected by payroll cut-offs or year-ends.
• Thank you to SAIT for assisting our client.

22. ETI - Reimbursement or Refund
• Which one is ETI?
• Section 10 of the ETI Act – Reimbursement
• We have intentionally been using refund and re-
imbursement in the previous slides…..
• ETI IS A REIMBURSEMENT. THE GOVERNMENT is
REIMBURSING YOU FOR WHAT IS already YOURS.
• It’s up to you to claim it.
• If time allows questions

23. ETI –
If you are going to claim – you better
get started now

24. Additional ETI information
• If you would like to find out more:
• Calculate your potential ETI benefit
• Detailed ETI submission processes
• Contacts us to find out
• Contact Details
– Gareth Hardy
– 083 675 8228
– Gareth@bazingaworx.o.za