Introduction to

Taxation
Sameenah Esack
LC 5.00
sameenah.esack@uct.ac.za
021 650 2284
 What is taxation
• Means whereby state collects funds
§ pays for administration
§ pays for benefits provided to residents
 Maxims of Taxation
1. Everyone ought to contribute towards the
support of the government in proportion to their
income. (EQUITY)
2. The tax to be paid by each individual ought to be
certain, not arbitrary. (CERTAINTY)
3. Taxes ought to be levied in such a manner and
at the time most convenient to the contributor.
(CONVENIENCE)
4. The collection cost of taxes ought to be as low
as possible. (ECONOMY)
South Africa Tax System
 South Africa Tax Legislation
• South Africa’s tax system is determined by
the laws that the Commissioner of SARS
must administer.
• Important tax legislation
§ The Income Tax Act 58 of 1962
§ The VAT Act 89 of 1991 and
§ The Customs Act 91 of 1964
 Annual Budget
• Each year the Minister of finance presents the annual
budget to the Parliament.

• The total expenditures of the government for the fiscal

year is announced and the manners in which the
expenditures is to be funded.

• Expenditure is mainly funded by means of taxation

and the balance is funded by loans and sundry
government funding.

• The government fiscal year is for the period 1 April to

the 31 March of the following year.
Annual Budget
Annual Budget
 Types of Taxes
Direct Tax Indirect Tax
• Normal Tax • Value-Added Tax
– Income Tax • Transfer Duty
– Capital Gains Tax
• Securities Transfer Tax
• Donations Tax
• Customs and Exercise
• Dividends Tax Duty
• Withholding Taxes
• Turnover Tax
• Estate Duty
INDIRECT TAXES
 Value Added Tax
• Is an indirect tax
§ Levied at either 0% or 15%
§ On the supply of goods or services
§ By a VAT vendor.

ü Generally a VAT vendor is able to claim an input tax when he

acquires goods or services from other vendors.

§ Value-Added Tax Act, 1991

§ VAT is collected on behalf of SARS by Vendors.

§ Vendors acts as agents of SARS
 Registration of a Vendor
• s23(1) Compulsory registration:
§ If a person conducts an ‘ENTERPRISE’ and
• Reason to believe that TAXABLE SUPPLIES > R1
million p.a., or has exceeded that amount

• s23(3) Voluntary registration:

• Conduct an ‘ENTERPRISE’
• Expect taxable supplies >= R50 000 p.a.
• Different vendor categories and tax periods
 Calculation of VAT – s16

Output Tax XXX

Less: Input Tax (XXX)
Add/Less: VAT Adjustment XXX
VAT Payable or refundable XXX
 Lecture Example 1
You have recently purchased a Matthew Mole CD
at Musica, for R200. Generally the price you pay
will be inclusive of VAT.

Calculate the Output VAT Musica will have to pay

to SARS on this transaction.

Solution: Output VAT = 15/115 x 200 = R26

 Transfer Duty
• Transfer Duty is payable by a purchaser
when he buys fixed property situated in
South Africa.

• Transfer duty payable is based on a sliding

scale of between 0% and 13%

§ Transfer Duty Act, 1949

 Securities Transfer Tax
• Securities Transfer Tax (STT) is payable at
a rate of 0.25% on the value of any shares
purchased.

• STT is paid on both listed and unlisted

shares.

§ Securities Transfer Tax Act, 2007

DIRECT TAXES
 Estate Duty
• Tax on the transfer of wealth

• When a person dies and is based on the

value of deceased persons assets on the
date of death.

• Levied at a 20% of the Net Value of the

Estate.
– Estate Duty Act, 1955
 Dividends Tax
• Came into effect on 1 April 2012 and replaced STC.

• Tax of 20% on dividends received by a shareholder

(individuals) from a South African company. It
increased from 15% to 20%, effective 22 February
2017.

• Tax is withheld by the company paying the dividends.

• Dividends are then exempt from Normal Tax

 Lecture Example 2
Shine Bright (Pty) Ltd, a South African
Company, recently declared a dividend of
R1 for each share held. Rhianna, a South
Resident, holds 1 000 shares in Shine Bright
(Pty) Ltd.

What are the tax consequences for Rhianna

on the dividends declared by Shine Bright.
 Lecture Example 2
Solution:

Dividends = 1 000 x R1 = R1 000

Dividends Tax = R1 000 x 20% = R200

Actual amount received by Rhianna in cash

R1 000 less R200 = R800
 Donations Tax
• Certain donations made by persons are
subject to a tax of 20% of the value of the
donations
 Normal Tax

• Normal tax is determined according to the

taxable income of a person earned
during the year of assessment.

• Taxable income is therefore the base on

which normal tax is calculated.
 Normal Tax
• Taxable Income of a person is calculated for a
particular year of assessment.

• Person:
§ Includes: natural persons, companies, close corporations,
trusts, insolvent and deceased estates, organizations and
clubs

• Year of Assessment:
Ø Individuals
§ 1 March – 28 February
Ø Company/Non-Natural Person
§ Financial Year
 Taxable Income Framework
Gross Income XXX
Exempt Income (XXX)
Income XXX
Less Deductions (XXX)
Add Taxable Portions of Capital Gains XXX
Taxable Income XXX

Taxable Income x Tax Rate (28%) = Normal tax

Tax rate for companies and CCs is a flat rate of 28%
Tax rates for natural persons depend on level of taxable income
 Normal tax
S 5(1) establishes the liability for normal tax
Person Rate Period
Natural persons 18% to 45% YOA à 28/2
Tax tables - “rebates”
Trusts 45% YOA à 28/2

South African 28% Financial year

Companies/CC end
South African 28% Financial year
branches of foreign end
companies
Small business 0%, 7%, 21% and 28% Financial year
corporations end

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 How to calculate tax
Taxable income (R) Rates of tax (R)
0 – 189 880 18% of taxable income
189 881 – 296 540 34 178 + 26% of taxable income above 189 880
296 541 – 410 460 61 910 + 31% of taxable income above 296 540
410 461 – 555 600 97 225 + 36% of taxable income above 410 460
555 601 – 708 310 149 475 + 39% of taxable income above 555 600
708 311 – 1 500 000 209 032 + 41% of taxable income above 708 310
1 500 000 and above 533 625 + 45% of taxable income above 1 500 000
 Lecture Example – normal tax
Peter is a 67-year-old resident of South-Africa.
During the current year of assessment Peter
received a salary of R550 000. Peter has no other
income or deductions.

Calculate the tax payable by Peter (excluding the

effects of rebates)
 Lecture Example 4
Solution

Gross Income – Salary 550 000

Exempt Income (0)
Income 550 000
Less Deductions (0)
Add Taxable Portions of Capital Gains 0
Taxable Income 550 000

Tax per tax tables [36% x (R550 000 – R410 460)] + 97 225 147 459

Normal Tax 147 459

 Methods for collecting normal tax
Employees Tax Provisional Tax
• Deducted on a monthly • Provisional taxpayers
basis from employees’ (persons who earn
salaries by their taxable income which is
employees not remuneration) are
• PAYE normally required to
make two provisional tax
payments per year
 Practical Considerations
• Registration of a Taxpayer
§ Any person who becomes liable to pay normal tax
• Returns and assessment of Normal Tax – Tax
period
§ 1 July to mid November – Employees Tax
§ End of January – Provisional Taxpayers
• Penalties and interest
• Efilling
• Tax Practitioners
 Turnover Tax
• Turnover tax is a simplified tax system aimed at
making it easier for micro businesses to comply
with their tax obligations.

• The turnover tax system replaces Normal Tax,

VAT, Provisional Tax, Capital Gains Tax and
Dividends Tax.

• Turnover tax is worked out by applying a tax rate

to the taxable turnover of a micro business. The
rates are as follows from 1 march 2015
 Turnover Tax

Turnover (R) Rate of tax (R)

0 - 335 000 0%
335 001 - 500 000 1% of each R1 above 335 000
500 001 - 750 000 1 650 + 2% of the amount above
500 000
750 001 and above 6 650 + 3% of the amount above
750 000
 Turnover Tax
• Turnover tax is available to qualifying
§ individuals (sole proprietors),
§ partnerships,
§ close corporations,
§ Companies, and
§ co-operatives
• with an annual qualifying turnover of R1 million or
less.
• Specific reasons can disqualify you from the
turnover tax system.
ADDITIONAL SLIDES
 Gross income
• Gross income is the starting point of the
taxable income calculation.
• Gross Income is defined as:
Ø The total amount
Ø In cash or otherwise
Ø Received by, accrued to or in favour of a person
Ø During the year or period of assessment
Ø Excluding receipts and accruals of a capital
nature.

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 Exempt income
• Exempt income is an amount included in
gross income,
§ But then exempted from normal tax in terms of
section 10 of the Income Tax Act.

§ An amount must be included in gross income

before it can be exempted.

• Examples of exemptions:
§ Dividends
§ Interest

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 Exempt income
• Examples of exempt income are:

• Local dividends received (full dividend is

exempt)
• Natural persons qualify for the following
interest exemptions:
o Natural persons under 65 R23 800
o Natural persons 65 and older R34 500

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 Deductions
• Expenditure or losses incurred by
§ the taxpayer for which a deduction is granted
under the Income Tax Act.

• Expenditure may qualify for deduction in

terms of
§ General deduction formula or
§ Special deduction

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 Taxable Capital Gain
• Since 1 October 2001, the Income Tax Act
requires a taxpayer who disposes of an
asset
– Where the asset was capital in nature.

• To include such taxable capital gain on

that disposal in taxable income.

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