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Employment Taxation Scheme

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
17 Mar 2018 11:00
Employment Taxation Scheme

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 carryin­gon 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 Employer­with Fiji Revenue and Customs Service.

How is the benefit claimed?

An employer that has taxable income may claim a deductionwhen 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 sectorthe 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 31 July 2016 onwards.

See Table 1: Example – Wages paid for First Time Employees.

Note that the deduction is allowed only once in the first year of employment.

Work Placements

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

A Coemploys 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. Below (See Table 2) is how the ACo will cal­culate the deduction for this purposes.

Part Time Workers

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:

  1. the employment must be related to the student’s area of study. Example, an ac­counting student engaged as a part-time payroll officer.
  2. 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). See Table 3

Employee Development

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 1 August 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 ($8,000 x 150%).

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) See Table 4.

Persons with Disabilities

A person can claim a 300% tax deduction for the amount of wages and salaries paid to an employee with physical disabilities and recruited from 1 August 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 recruit men­tor August 1, 2016;

  1. the incentive ends on 31 December 2022
  2. if an employee is unfairly dismissed (as determined in a court of law), the incentive will be reversedandthe 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.

nNote: The allowable deduction in the final year is based on wages for 9 monthsbecause the 3-year period ends in September 2019. (See Table 5.)

Application Process

Anyperson 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 info@frca.org.fj 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 approvalletteris 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.

Feedback: maraia.vula@fijisun.com.fj

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