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South Africa May Fine Employers Who Abuse Youth Wage Tax Breaks

Oct. 24 (Bloomberg) -- South Africa plans to fine employers who replace workers to take advantage of a tax break that’s meant to encourage hiring, in a bid to address union opposition to the incentive.

A draft law proposes that employers who hire South Africans who are 18 years old to 29 years old and pay them less than 6,000 rand ($615) a month be allowed to deduct some of the wage against tax for the first two years of employment. A formula will be used to calculate the size of the deduction, which varies depending on the salary.

The Employment Tax Incentive Bill, introduced in Parliament today by Finance Minister Pravin Gordhan, provides for employers who unfairly substitute workers to benefit from the incentive to be fined 30,000 rand per infringement.

“Everything possible must be done to enable employment to increase,” Gordhan told lawmakers. “Approximately 94 percent of young people do not have further or tertiary education, approximately 80 percent have never worked or been employed for longer than a year and these are alarming indicators. We are creating a dispensation where enterprises can share the cost of employing both older and younger workers.”

President Jacob Zuma announced the government’s plan to introduce measures to boost youth employment in February 2010. The tax breaks and a previous proposal to subsidize wages have been opposed by the Congress of South Africa Trade Unions, the nation’s biggest labor union federation, because of concerns that they would lower wages and displace existing workers. Cosatu is in a political alliance with the ruling African National Congress.

The incentive will probably come into effect in January and will cost the government 1 billion rand to 2.3 billion rand over the next two years, the ruling African National Congress said in an e-mailed statement today.

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

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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