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South Africa Plans Tax Incentives to Encourage Youth Jobs

South Africa’s cabinet approved new tax incentives aimed at encouraging companies to hire young people entering the job market in a bid to tackle a 25.6 percent unemployment rate.

Companies taking on South Africans 19 to 29 years old who earn less than 6,000 rand ($611) a month will be able to deduct some of the wage against tax for the first two years of employment, the National Treasury said in an e-mailed statement today. A formula will be used to calculate the size of the deduction, which varies depending on the salary, it said.

President Jacob Zuma announced the government’s plan to introduce measures to boost youth employment in February 2010. The tax breaks will be introduced instead of a previous proposal to subsidize wages that was opposed by the Congress of South Africa Trade Unions, the nation’s biggest labor union federation, because of concerns that it would lower wages and displace existing workers.

“In South Africa’s labor market, the current lack of skills and experience as well as perceptions regarding the restrictiveness of labor regulations make some prospective employers reluctant to hire youth,” the Treasury said. “The incentive is meant to stimulate demand for young workers.”

The proposed tax deductions, which are being considered by lawmakers and will probably be introduced from January, should also be made available to companies hiring staff in designated economic zones, the Treasury said.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Gordon Bell at gbell16@bloomberg.net

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