Say “YES” to reducing your Tax and increasing your B-BBEE rating

On 27 March 2018, President Cyril Ramaphosa launched an initiate that would increase job opportunities for the unemployed youth in South Africa. The initiative is referred to as “YES”, short for Youth Employment Services.

The initiative aims to see that over one million young black South Africans, between the ages of 18 and 35, are offered paid internships in the next three years.

In order to make the above vision a practical financial reality, the Companies partaking in YES will be eligible to receive both a tax incentive, in terms of the Employment Tax Incentive (“ETI”) scheme as contained in the Income Tax Act, and an increased B-BBEE rating as per the proposed Gazette No. 41546 issued on 29 March 2018, which will affectively amend the current B-BBEE Act.

The YES initiative will be incorporated in the proposed amended B-BBEE Act and will also apply to the rating of Exempted Micro Enterprises (“EME”). The amended B-BBEE Act seeks to change the rating scorecard, thereby obliging all EME enterprises, below a level two rating, to essentially determine their rating via a Generic Scorecard method, as opposed to the previous method of simply declaring the level on an EME Affidavit.

In summary, it is proposed that any EME that has less than 51% black ownership, will not be able to obtain a B-BBEE rating by means of utilizing the flow-through principle (i.e. by means of an EME Affidavit), but will be obliged to obtain a rating via the Generic Scorecard method, which allocates points based on certain elements, such as ownership; management control; skills development; enterprise and supplier development and socio-economic development.

The element pertaining to socio-economic development is where the YES initiative will be able to increase the points accordingly. This will be possible by means of reaching certain targets, which is calculated by a formula depending on the size and headcount of the Company participating. Once the target is met, the Act proposes that the Company move up an entire B-BBEE level, and if the target is exceeded, additional points can be obtained or as much as two level increase can be awarded.

President Ramaphosa indicated that the YES initiative will effectively tackle the high rate of unemployment, specifically for young South Africans, and will essentially equip them with the required skills and experience to become further employable.

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