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Win for the employer: Judgment on the Employment Tax Incentive Act
- 19 December 2019
- Corporate Tax
- Louis Botha and Louise Kotze
Monday, 11 February 2019
Important:
This article is based on tax law for the tax year ending 28 February 2019.
Authors: Louis Botha and Louis Kotze
In the recent case of ABC (Pty) Ltd v The Commissioner for the South African Revenue Service (Case No 14426) (as yet unreported), the Tax Court was required to decide whether ABC (Pty) Ltd (Taxpayer) could claim the employment tax incentive (ETI) in terms of the Employment Tax Incentive Act, No 26 of 2013 (Act) in respect of certain periods. In deciding the matter, the court not only considered the provisions of the Act, but also considered and applied various principles of South African labour law.
Facts The Taxpayer conducted its business in the wholesale and retail industry, to which industry a sectoral determination (SD) was applicable. The SD prescribed the minimum wages for employees in the sector and was published in January of each year. The terms of the SD were applicable from 1 February until 31 January of the next year.
On 24 August 2012, the Taxpayer concluded a three-year collective agreement with a trade union (Union) representing approximately 30% of the Taxpayer’s employees. In terms of the agreement, negotiated wage increases were paid effective from 1 May of each year. The agreement also provided that those amounts due to employees in terms of the SD wage adjustments would be paid in a lump sum in arrears on 1 May of every year. The Taxpayer treated unionised and non-unionised employees alike and paid all annual wage increases with effect from 1 May of each year, in addition to the backpay in terms of the SD (backdated to 1 February of that year).
During 2014 and 2015, the Taxpayer sought to claim the ETI in respect of qualifying employees. However, the Commissioner for the South African Revenue Service (SARS) disallowed the ETI claims for the months February, March and April in the relevant years on the basis that the qualifying employees were paid less than the minimum amount stipulated in the SD during those months. After the Taxpayer raised an objection, SARS allowed the ETI claim only in respect of those employees who were members of the Union. In addition, SARS disallowed the ETI claims for those employees who had taken unpaid leave, which claims had been based on the pro-rata wages paid to the employees for the days worked.
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This article first appeared on cliffedekkerhofmeyr.com.