UIF relief for taxpayers

On 25 February 2015, the Minister of Finance, Nhlanhla Nene, delivered the 2015 Budget Speech (Budget Speech) which contained a number of tax proposals. One such proposal relates to the temporary reduction in contributions to the Unemployment Insurance Fund (UIF) for the 2015/16 financial year.

By way of background, the UIF gives short-term relief to workers when they become unemployed or are unable to work due to maternity, adoption leave or illness. The unemployment insurance system in South Africa is governed by the Unemployment Insurance Act, No 63 of 2001 (UI Act) and the Unemployment Insurance Contributions Act, No 4 of 2002 (UIC Act). These Acts came into operation on 1 April 2002 and provide for the benefits, to which contributors are allowed, and the imposition and collection of the contributions to the UIF, respectively.

It should be noted that the employer and employee are required to contribute 1% of the employee's remuneration to the UIF. The employer is liable for the payment of both contributions to the UIF, but may recover the employee's contribution from the employee. The employer must therefore pay a total contribution of 2% (1% contributed by the employee and 1% contributed by the employer) within the prescribed period. Section 6(2) of the UIC Act enables the Minister of Finance to adjust the remuneration threshold by notice in the Government Gazette, after consultation with the Minister of Labour and the UIF Commissioner.

As of 1 October 2012, the maximum monthly remuneration subject to UIF was capped at R14,872 per month (R178,464 annually) and any remuneration paid to an employee in excess of this limit was not subject to any contributions. The National Treasury has, in the Budget Speech, proposed a once-off relief on the UIF contributions for the 2015/16 financial year. The relief is in the form of a reduction in the remuneration threshold, against which the contributions are calculated, from R14,872 to R1,000 per month. The effect thereof is that employees and employers will pay only R10 in monthly UIF contributions, resulting in a collective figure of approximately R15 billion back to employees and employers. In addition, the proposed reduction in contributions will not reduce any unemployment insurance benefits payable to beneficiaries, as a reduction of those benefits may only take place by amending the current amounts set by the Minister of Labour in terms of the UI Act.

This proposal comes after the UIF accumulated a surplus of R72.3 billion during the 2013/14 financial year and a net asset position of R90.4 billion in 2013/14. Despite the more generous benefits mandated by a legislative amendment in 2012, the “UIF estimates that earmarked contributions will add R51,8 billion to its accumulated surplus over the next three years”.

The reduction is proposed to take effect on 1 April 2015, and will be reconsidered for the next fiscal year, shortly before 1 April 2016. On 4 March 2015, National Treasury published an invitation for public comment on the proposed reduction of UIF contributions, which states that this proposed relief "aims to provide temporary support to households and employers, in a fiscally sustainable manner" and "by reducing unemployment insurance contributions for a limited period, government will partially off-set the impact of higher taxes and slow growth on employees and employers."

Comments on the proposed relief were due on 20 March 2015. The comments will be considered before a decision is made on whether to reduce the remuneration threshold in accordance with s6(2) of the UIC Act.