National Treasury this week proposed major changes to two multibillion-rand employment-related subsidy schemes.
The Learnership Tax Allowance, which costs about R1 billion a year, is set to become far more generous with the tax break it provides, rising by 33% in most cases.
Treasury is also proposing that a wide array of new entities that get to register learnerships, potentially overcoming the paralysis in parts of the Sector Education and Training Authorities (Setas) that set in around 2012.
At the same time, Treasury has finally decided to put breaks on the contentious Employment Tax Incentive by capping large corporations’ annual subsidies at R20 million.
This could take away millions in tax credits for large service-sector companies.
A review of the learnership allowance’s performance was released alongside the proposed amendments.
In it, Treasury makes a surprising argument: that the system is funding too many high-level qualifications.
In terms of the National Qualifications Framework (NQF), the “high” levels are seven to ten.
NQF 4 is equivalent to matric, while NQF 8 is a bachelor’s degree.
Treasury’s main proposal is to reduce the tax break for high-level learnerships, but increase the break for low-level ones.
As things stand, learnerships get you an initial R30 000 tax allowance for every year of the learnership and then a R30 000 allowance when it is completed.
This number should get raised to R40 000 for NQF 1 to NQF 6 and reduced to R20 000 for the higher NQFs, said Treasury.
The benefit to a corporation conducting learnerships is equal to the tax rate – 28% – multiplied by the allowance.
For qualifications equal or lower than matric, this will now become about R22 400 per year as opposed to R16 800 before.
However, for higher-level qualifications, the previous R16 800 drops to R11 200.
Treasury’s review creates the impression that reducing the resources being spent on high-level learnerships will fund the increase for low-level ones.
In reality, the system produces a negligible number of high-level learnerships anyway, so Treasury is effectively just increasing the value of tax allowances for the learnerships that actually exist.
Chairperson for education and training at Business Unity SA (Busa), Nazrene Mannie, said she couldn’t think of ever encountering a learnership with a level higher than NQF 6.
“We are happy it is increasing,” she said.
It would be a significant break for the private sector if the whole Seta system wasn’t already undergoing a rapid contraction.
Treasury’s proposal might restore the amount of money being spent on learnership tax benefits back to its old high point in 2013.
Total learnership allowances were R4.5 billion in 2013, translating into tax expenditure of R1.25 billion. This dropped to R725 million in 2014 and had probably kept shrinking.
The number of people in learnerships fell from 78 000 to 55 000 between 2013 and 2014.
A variety of problems caused the contraction of the system, with many Setas being placed under administration by the Higher Education and Training Minister Blade Nzimande.
Companies’ ability to register learnerships at some major Setas – including what was then the largest, the Services Seta – suddenly collapsed amid attempts by Nzimande to implement sweeping reforms of the system.
Those reforms are partially stuck in court, where Nzimande and Busa are fighting about who will control the 1% skills levy that funds the Setas and the cost of training, including for learnerships.
This levy amounts to about R17 billion a year. Nzimande slashed the “mandatory grant” that all employers get back simply for filing a workplace skills plan from 50% down to 20%. Busa is still fighting this in court.
Late last year, Nzimande also released a radical change to the Seta system that would turn the Setas into advisory bodies and strip them of control of most of the skills-levy funds to instead put the money into a centralised authority that will direct it.
This proposal is still undergoing consultation.
Whose side are you on?
Treasury’s review had little to say about Nzimande’s battle to push his reforms in the Seta sector, but dismissed the short-term prospects of last year’s proposal.
“The outcome of this process is uncertain at present. However, given the proposed changes, there is a risk that there may still be inefficiencies in the Seta system over the medium term related to implementing the proposed amendments, and this is likely to have an impact on the learnership tax incentive,” said the review.
Instead, Treasury proposed that an array of new industry bodies get the power to register learnerships in addition to the Setas.
This seemingly contradicts the centralising impulse of Nzimande’s plan.Read Fin24's top stories trending on Twitter: Fin24’s top stories