A comparative analysis of the tax treatment of employer-provided bursaries and scholarships

Abstract

Section 10(1)(q) of the Act provides a tax exemption on employer-provided bona fide bursaries and scholarships provided that certain conditions are met. The overarching requirement is that the bursary and scholarship must not form part of a salary sacrifice arrangement between the employer and the employee for the purpose of granting the bursary or scholarship. As a tax incentive, section 10(1)(q) of the Act contributes towards the country’s skills development strategy; however salary sacrifice arrangements create a blockage to the effectiveness of the tax incentive. The purpose of the study was to discuss the effectiveness of section 10(1)(q) of the Act as a tax incentive and, in comparison with OECD countries, the study attempted to determine where South Africa is from an international perspective in terms of the bona fide bursary and scholarship tax incentives. The study followed the qualitative research methodology due to its theoretical nature. In addition, the legal research design method was adopted for this study with a focus on the reform-oriented method. The arrangement of the study was a discussion of section 10(1)(q) of the Act including its evolution from 1962 to date, and this was followed by a detailed discussion of salary sacrifice arrangements as a major contributing factor to the effectiveness of section 10(1)(q) of the Act as a tax incentive. The discussion was followed by a theoretical discussion of tax incentives including a detailed discussion of the characteristics of a meaningful and effective tax incentive. The characteristics were then measured against section 10(1)(q) of the Act to determine its meaningfulness and effectiveness as a tax incentive. Thereafter, the tax policy of employer-provided scholarships by a number of OECD countries was discussed and compared to South Africa’s provisions in an attempt to determine the effectiveness of the tax incentive on an international scale. The study found that section 10(1)(q) of the Act may not fully realise its meaningfulness and effectiveness in the South African context due to limitations created by salary sacrifice arrangements. However, on an international scale, section 10(1)(q) of the Act was found to be lenient since it was discovered that the provisions appear to provide more relief than those of the majority of the OECD countries discussed in the study.