Skills Development Levies bill: briefing

Meeting report

LABOUR PORTFOLIO COMMITTEE
9 March 1999
SKILLS DEVELOPMENT LEVIES BILL: BRIEFING

Documents handed out:
Slide presentation: briefing on Skills Development Levies Bill

MINUTES
Skills Development Levies Bill: Background
In 1995 Nedlac researched plausible funding mechanisms for skills development initiatives internationally. Within the same year, existing skills development funding was examined within South Africa. In 1996, studies were undertaken to establish the private sector’s business practices in skill development.

Through this research, a range of alternative funding mechanisms emerged. The first was the voluntary levy scheme; however this was problematic in past experiences because it was not creating a positive shift in skill development. The second were levy grant schemes, but the people who managed these grants were not experts, creating more problems. Voucher systems and levy exemption systems have worked well in the UK; however, the complexity of the system would not work well within South Africa. Tax incentives and public subsidies also do not work effectively.

Rationale for levy-grant scheme
-funds are collected from businesses and then redistributed based on participation
-catalyst for improving established industry and company education and training
-strong cost-benefit relationship
-industry ownership is a necessary condition for successful funding
-education/training decisions remain with the companies
-government raises the levy on quantity and quality of training

Addresses Market Failures
-externalities
-high labour turnover
-information failures
-social considerations
-provides resources for infrastructure

Main Changes
-Levy rate in Financial Year 00/01 will be 0,5%. From FY01/02 onwards, the levy will be 1%.
(The rationale behind this is because if 1% were collected from year one, the majority of the SETAs [Sector Educational Triaing Authority] would be unable to spend the revenue collected at the end of the first year.)
-Base of the levy will incorporate all remuneration.
-need to align levy and income tax for SARS to collect
-more efficient collection process
-less uncertainty and more accountability
-SARS will be the National Collection Agency
-Allowable collection costs can increase to a maximum of 2% of the total levies
-Levy contributions are tax deductible
-The Director General of the Labour Department and the Commissioner of SARS administer the Act

Imposition/Definition of Levies Amount
-leviable amount means the total remuneration paid by the employer to its employees in any month, as set out by the income tax rules
-The Minister of Labour and the Minister of Finance can establish rate and basis for calculating the levy different than the standard rate and base. An example would be for the construction industry, where it is difficult to determine standard wages.

Levies are not paid by:
-national/provincial government
-companies whose total wage bill is less that R250,000
-religious/charitable organizations
-national/provincial organizations of public entity who receive more than 80% of funds from the government

-SARS must determine which SETA the business will registrar with for payment of the levy
-Payment to SARS must occur
-7 days after the end of the month
-The business must provide a receipt of costs
-The DG will then receive a list of who paid/not paid as well as which SETA

Additional Elements
-collection fees
-interest on late payments (rate determined by income tax i.e. 19%+10%)
-penalties on default
-recovery of levy by commissioner of SARS
-recovery of levy by SETA

Amendments to Skills Development Act
-Section 1: Definitions
-"Levy-Grant" changes to "levy-financing"
-SETAs cannot invest in unitrusts

Conclusion
-Firmly within the spirit of remarks made and the consensus reached within Nedlac.
-catalyst for more skill development within the country
-without this finance mechanism, Skills Development Act not implementable
-goals of development strategy will be jeopardized if not passed during this session.