Employment taxation scheme
21 March, 2018, 12:00 am
THE Fijian Government offers various tax and Customs concessions to encourage investments and at the same time create employment opportunities that will result in raising the living standards of all Fijians.
In this week’s article we look at the employment taxation scheme (ETS) which is an incentive to encourage businesses to employ Fiji school leavers. The ETS was first introduced in 1997 and this has been maintained by government over the past 20 years to support and increase the employment level.
What is the employment taxation scheme?
The employment taxation scheme (ETS) is a tax incentive that allows a person carrying on a trade or business in Fiji to claim deductions ranging from 150 per cent to 300 per cent of the amount of salary, wages and education fees paid to school leavers, tertiary students, persons with physical disabilities.
The ETS aims to encourage Fiji businesses to support the employment of school leavers, tertiary students, persons with physical disabilities and the promotion of higher education for employees, through participation in the scheme.
However, any person wishing to claim this deduction should be a registered employer with Fiji Revenue & Customs Service.
How is the benefit claimed?
An employer that has taxable income may claim a deduction when filing the business’s tax return. The allowable deduction reduces the tax payable amount of the employer for that tax year. Hence the employer will either pay less income tax or no income tax at all.
However, FRCS wishes to also encourage employers that do not have taxable income to support this government initiative by employing individuals mentioned in the scheme.
First time employees
This applies to new full time employees in the first 12 months of their employment.
Provided that it is the individual’s first employment and he/she must not be paid less than the minimum wage rate for the industry or sector the employee is employed under. Where the conditions are met the employer is entitled to the following:
i. 150 per cent tax deduction for the amount of salary/wages paid to new employees hired from January 1, 2016 to July 31, 2016.
ii. 200 per cent tax deduction for the amount of salary/wages paid to new employees hired after July 31, 2016 onwards.
A person is allowed a 200 per cent tax deduction for the amount of salary or wages paid to a student on a work placement, internship, apprentice, trainee or work attachment in the first six months of employment provided that:
i. The employment or work attachment is part of the student’s graduation requirement in a learning program set by a higher education institute.
ii. The student was employed in between the period August 1, 2016 to December 31, 2020.
This basically means that businesses can claim 200 per cent as an allowable expense on the amount of salary or wages paid to a student on work attachment provided that the above conditions are met.
If the student who is on work placement is employed for a period more than six months, then deduction will only be allowed for the first six months of employment.
Note the incentive does not apply to businesses that employ students who have completed their studies and have graduated.
Example – Wages paid to employee on work placement
ACo employs Steven from January to August of 2017 on a monthly pay of $400. Steven studies mechanical engineering in a recognised vocational institution in Fiji. He is required to work for four months in a garage as part of his graduation requirement. Total wages for the period of employment was $3200 ($400 x 8 months). ACo can only claim a 200 per cent deduction on total wages paid in the first six months.
A person can claim a 200 per cent tax deduction for the amount of salary/wages paid to a student who is a part time worker. It does not apply to permanent employees pursuing private studies. The following conditions must be met:
i. The employment must be related to the student’s area of study. E.g. an accounting student engaged as a part-time payroll officer.
ii. A deduction is allowed for the wages paid in the first three months of the student’s employment in a 12-month period
iii. The incentive is available in the period August 1, 2016 — December 31, 2020
Example — Wages paid to part-time worker
An accounting firm employs Jane an accounting student at local university on a part time basis. Jane works for four hours. She is paid $$500 a month. Total wages for August to December 2016 was $2500 ($500 x 5 months).
A person can claim 150 per cent tax deduction on the amount spent by the employer on an employee’s formal education fees to study in a tertiary institution during the course of employment. This applies to education that will result in the issue of a certificate, diploma, degree etc. to the individual. It does not apply to usual work benefits that employers may undertake to up-skill their staff such as attendance at workshops, group training etc.
The following conditions must be met:
i. The expense must be incurred on or after August 1, 2016;
ii. The employee must be required to work for the employer for a minimum period of one year upon completion of studies.
Example — Employee development expense
HJK Bank requires two employees to undertake banking courses at a local university. In 2016, the cost of education was $8000.
In its tax return for 2016, HJK Bank can claim a tax deduction of $12,000 ($8000 x 150 per cent). In 2017, the education cost for six employees was $10,000. HJK Bank can claim a tax deduction of $15,000 ($10,000 x 150 per cent).
Persons with disabilities
A person can claim a 300 per cent tax deduction for the amount of wages and salaries paid to an employee with physical disabilities and recruited from August 1, 2016 onwards.
The following conditions must be met:
i. The employer’s application for registration must be supported by a medical certificate explaining the nature of the disability;
ii. The deduction for salary/wages paid can be claimed for three consecutive years;
iii. The salary/wages deductible is the amount paid from the date of recruitment or August 1, 2016;
iv. The incentive ends on December 31, 2022; and
v. If an employee is unfairly dismissed (as determined in a court of law), the incentive will be reversed and the employer will be taxed on the amount of incentive allowed as a deduction.
Example — Wages paid to a disabled person
EFG partnership engages Jone, a switch board operator, in October 2016 and he will be paid $500 a month.
Jone is visually impaired. EFG can claim a tax deduction of 300 per cent for three years.
Note The allowable deduction in the final year is based on wages for nine months because the three-year period ends in September 2019.
Any person wishing to claim a deduction must first register with the tax office.
Employers interested in the ETS can check whether they meet the requirements before applying for registration by writing to email@example.com or contacting any FRCS office Fiji wide.
Application must be made in the approved form — registration of employment taxation scheme and can be downloaded from the following link: https://www.frcs.org.fj/wp-content/uploads/2012/11/ETS-form-new.pdf.
Once the CEO is satisfied that the conditions are or will be met, provisional approval will be granted in writing.
The provisional approval letter is to be attached to the tax return to support a claim together with details of the employees for which the deduction is claimed e.g. name, date of recruitment, FNPF number, wages paid etc.
Record keeping obligations
Employers must keep proper business records as this is a requirement under the tax law and to provide documentary support of the claim being made.