The Transaction Costs of the South African Levy– Grant System for Skills Development


  • Gregory Lee Wits Business School



payroll tax, South Africa, training, skills development, levy-grant systems


In this article, I seek to explore the ratio between the administrative transaction costs faced by organisations in South Africa for claiming skills development grants and the grants that they achieve. This simple trade-off of costs versus gains is a key factor in whether firms choose to participate in the training-related activities targeted by this system. Anecdotal sources have claimed that excessive administrative costs have led firms to under-claim grants available to them. However, no prior empirical research exists on such costs, presenting a gap in the literature. Accordingly, in this article, I explore the proportion of administrative transaction costs to direct gains in 14 case studies of South African organisations regarding their 2016 activities and expenditures. The results found half of the firms studied to have costs in excess of direct gains from grants. The remaining firms exhibited extreme variability in the cost–gain ratio from very low to near parity. Some evidence suggests that larger firms may enjoy a slight cost–benefit advantage. This research provides some support for the claim that the levy–grant system for skills development may present many organisations with excessive costs compared to gains. The high levels of variability suggest that policymakers should consider cost structures carefully and mitigate policy instruments.


Metrics Loading ...


Allais, S. (2012). Will skills save us? Rethinking the relationships between vocational education, skills development policies, and social policy in South Africa. International Journal of Educational Development, 32(5), 632–642. DOI:

Almeida, R., Behrman, J., & Robalino, D. (Eds.). (2012). The right skills for the job? Rethinking training policies for workers. The World Bank. Retrieved from DOI:

Archer, S. (2010). Key issues in the assessment of SETA performance in South Africa’s national skills development strategy (Working Paper 52). Cape Town: Southern Africa Labour and Development Research Unit, University of Cape Town. Retrieved from

Dar, A., Canagarajah, S., & Murphy, P. (2003). Training levies: Rationale and evidence from evaluations. Washington, DC: World Bank. Retrieved from

Dougherty, C., & Tan, J. P. (1997). Financing training: Issues and options. International Journal of Manpower, 18(1/2), 29–62. DOI:

Dunbar, M. (2013). Engaging the private sector in skills development. Health & Education Advice and Resource Team. Oxford: Oxford Policy Management. Retrieved from

Erasmus, J. (2009). The identification of scarce and critical skills in the South African labour market. In J. Erasmus & M. Breier (Eds.). Skills Shortages in South Africa. Case Studies of Key Professions (pp. 22–33). Cape Town: HSRC Press.

Field, S., Musset, P., & Álvarez-Galván, J. L. (2014). A skills beyond school review of South Africa. OECD. DOI:

Gasskov, V. (1994). Alternative schemes of financing training. Geneva: International Labour Office.

Gospel, H., & Casey. P. (2012). Understanding training levies: Evidence report 47. Rotherham, UK: UK Commission for Employment and Skills. Retrieved from

Hatting, S. (2013, January 14). New SETA grant regulations cause for concern. The Skills Portal.

Hess, A. A., & Rust, A. A. (2010). The constraints SMMES experience whilst attempting to recover skills levies from the W&RSETA in South Africa. African Journal of Business Management, 4(17), 3691–3696. Retrieved from

James, S. (2012). The skills training levy in South Africa: Skilling the workforce or just another tax? Skope Issues Paper 19. Cardiff, Wales: Cardiff University. Retrieved from

Johanson, R. (2009). A review of national training funds. Washington, DC: The World Bank. Retrieved from

Kabizokwakhe, M. (2012, September 17). Coffers looted—SETA millions lost to misspending, fraud. Sunday World. Retrieved from

Kraak, A. (2004). The national skills development strategy: A new institutional regime for skills formation in post-apartheid South Africa. In S. McGrath (Ed.). Shifting understandings of skills in South Africa: Overcoming the historical imprint of a low skills regime (pp. 116–157). Cape Town: HSRC Press.

Lee, G. J. (2012). Firm size and the effectiveness of training for customer service. International Journal of Human Resource Management, 23(12), 2597–2613. DOI:

Lee, G. J., & Davison, A. (2018). Designing payroll levies for firm training. International Journal of Manpower, 39(6), 766–781. DOI:

Lynham, S. A., & Cunningham, P. W. (2004). Human resource development: The South African case. Advances in Developing Human Resources, 6(3), 315–325. DOI:

Mail & Guardian. (2007, April 24). Mismanagement of funds plagues many of SA’s SETAs. Mail & Guardian. Retrieved from

Marock, C. (2010). Thinking “out the box” by thinking “in the box”: Considering skills development: Challenges and recommendations. Johannesburg: Development Bank of Southern Africa. Retrieved from

Middleton, J., Ziderman, A., & Van Adams, A. (1993). Skills for productivity: Vocational education and EPT in developing countries. Oxford: Oxford University Press.

Müller, N., & Behringer, F. (2012). Subsidies and levies as policy instruments to encourage employer-provided training. OECD Education Working Papers, No. 80. OECD Publishing (NJ1). DOI:

Phakathi, B. (2017, April 28). Protector targets suspected fraud at AgriSeta. Business Day. Retrieved from

South African Department of Trade and Industry. (2017). Broad based black economic empowerment act. Pretoria: South African Government Gazette. Retrieved from

Stone, I. (2012). Upgrading workforce skills in small businesses: Reviewing international policy and experience. Copenhagen: Danish Business Authority & OECD. Retrieved from

Tech Central. (2017, August 7). Probe into alleged corruption at ICT SETA. Tech Central. Retrieved from

Whalley, J., & Ziderman, A. (1990). Financing training in developing countries: The role of payroll taxes. Economics of Education Review, 9(4), 377–387. DOI:



How to Cite

Lee, G. (2023). The Transaction Costs of the South African Levy– Grant System for Skills Development. African Journal of Employee Relations, 47, 17 pages .



Received 2019-08-24
Accepted 2022-08-24
Published 2023-12-13