Taxation in South Africa
Encyclopedia
Taxation in South Africa may involve payments to a minimum of two different levels of government: central government
through the South African Revenue Service
(SARS) or to local government
. Central government revenues come primarily from income tax
, value added tax
(VAT), corporation tax and fuel duty
. Local government revenues come primarily from grants from central government funds and municipal rates
. In the 2010/2011 fiscal year SARS collected R
674.2 billion in tax revenue; R75.6 billion (or 12.6%) more than the previous fiscal year. South Africa has a tax-to-GDP ratio of 25.3%.
ation system which is based on the premise that the wealthy should contribute a greater proportion towards supporting the State then the poor. This means that the more a person earns the higher percentage tax they pay.
Income tax in South Africa was first introduced in 1914 with the introduction of the Income Tax Act No 28, an act that had its origins in the New South Wales Act of 1895. The act has gone through numerous amendments with the act presently in force is the Income Tax Act No 58 of 1962 which contains provisions for four different types of income tax. These four types of tax are:
Individual income tax rates in South Africa range from 18% (for income below R150 000 p.a) to 40% (for amounts over R580 000), although the tax threshold of R59 750 means that anyone earning less than this amount pays no income tax. Individuals earning less than R120,000 a year do not need to declare their not to submit an income tax return so long as their remuneration is from a single employer, their remuneration is for the full tax year and no allowance was paid, from which PAYE was not deducted in full with regards to travel allowance.
In 2009 there were 3.5 million assessed taxpayers with a total taxable income of R632.6 billion, of that they were liable to pay R154.1 billion. Of them 28.8% were between 35 to 44 years old and 56.7% were male, 3.9% (136,124) of them had business income. Over 60% of taxable income came from salaries, wages and remuneration. Travel allowances were the largest allowance claim, the largest fringe benefit was medical aid paid on behalf of employees and contributions to retirement funds were the largest tax deductions. Although the number of tax payers has increased most taxpayers fall below the R120,000 taxable income threshold and so are not required to submit an income tax return and are therefore not included in the 3.5 million assessed taxpayers.
The company income tax rate is levied at 28% of the taxable income of the company. Certain companies qualifying as a small business corporation were tax is levied at 10% for taxbale income above R 59,750 up to a limit of R 300,000 and 28% on taxable income above R 300,000. Employment companies pay a tax of 33%. Dividends are subject to an additional tax called the Secondary Tax on Companies which is 10% of declared dividends.
In the 2009 tax year 34.2% of 473,034 companies in South Africa had taxable income. Of them 56.5% of the tax was paid by 222 large companies with a taxable income in excess of R200 million. Around 50% of the collectively assessed companies were from the finance, retail and wholesale trade sectors and were responsible for over 35% of this tax. The mining and quarrying sector -consisting of only 0.3% of the companies assessed- shrunk from 8.6% in 2006 to 5.7% in 2008 refecting the declining importance of the mining sector to the South African economy
.
, also called retention tax, is a government requirement for a South African payer of an item of income to a non-resident in South Africa to withhold or deduct tax from the payment, and pay that tax to the government. This tax can be divided into two categories:
(VAT)is a broad tax made by vendors on the supply of goods and services that is charged upon purchase. VAT must be paid irrespective of whether or not it is a capital good
or trading stock so long as the vendor uses the goods in his/her enterprise. It was first introduced in South Africa in its current form on 29 September 1991 at a rate of 10%. Currently VAT is set at 14%. If given price on an item charged by a vendor does not mention VAT then that price is deemed to include VAT.
In 2009/10 fiscal year about 72% of the 685,523 registered VAT vendors were active. Over 55% of VAT vendors had a turnover of less than R1 million.
, predominantly processed fossils fuels like petrol and diesel. In 2011 this tax represented about 29.6% of the price of 93 octane petrol and 30.3% of the price of diesel.
5% of the total fuel price paid at the pump in South Africa goes to the Road Accident Fund
which is a state insurer that provides insurance cover to all drivers of motor vehicles in South Africa in respect of liability incurred or damage caused as a result of a traffic collision.
Government of South Africa
The Republic of South Africa is a constitutional democracy with a three-tier system of government and an independent judiciary, operating in a nearly unique system that combines aspects of parliamentary and presidential systems. Legislative authority is held by the Parliament of South Africa...
through the South African Revenue Service
South African Revenue Service
The South African Revenue Service is the revenue service of the South African government. It was established by legislation to collect revenue and ensure compliance with tax law...
(SARS) or to local government
Municipalities of South Africa
Municipalities in South Africa are a division of local government that lie one level down from provincial government, forming the lowest level of democratically elected government structures in the country. The foundation for this layer of government is set out in Chapter 7 of the Constitution of...
. Central government revenues come primarily from income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
, value added tax
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
(VAT), corporation tax and fuel duty
Hydrocarbon oil duty
Hydrocarbon oil duty is fuel tax levied on some fuels used by road vehicles in the United Kingdom. Between 1993 and 1999 the Government's Fuel Price Escalator led to significant rises in the cost of fuel which led to fuel tax protests in 2000, 2005 and 2007. In May 2008, UK fuel tax rates were one...
. Local government revenues come primarily from grants from central government funds and municipal rates
Rates (tax)
Rates are a type of property tax system in the United Kingdom, and in places with systems deriving from the British one, the proceeds of which are used to fund local government...
. In the 2010/2011 fiscal year SARS collected R
South African rand
The rand is the currency of South Africa. It takes its name from the Witwatersrand , the ridge upon which Johannesburg is built and where most of South Africa's gold deposits were found. The rand has the symbol "R" and is subdivided into 100 cents, symbol "c"...
674.2 billion in tax revenue; R75.6 billion (or 12.6%) more than the previous fiscal year. South Africa has a tax-to-GDP ratio of 25.3%.
Overview
Of the R674.2 billion collected by SARS in 2010/2011, R133.42 billion came from companies, R184.2 billion from VAT, R26.57 billion from customs duties, R226.93 billion from individuals, R17.01 billion from secondary taxes on businesses, R21.47 billion from specific excise duties, R35.05 billion from the fuel levy and R29.58 billion from other taxes.Direct taxation
Direct taxes are taxes which are imposed on individuals, trusts, deceased estates, companies and close corporations; all of whom are otherwise known as persons.Income tax
South Africa has a progressive income taxIncome tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
ation system which is based on the premise that the wealthy should contribute a greater proportion towards supporting the State then the poor. This means that the more a person earns the higher percentage tax they pay.
Income tax in South Africa was first introduced in 1914 with the introduction of the Income Tax Act No 28, an act that had its origins in the New South Wales Act of 1895. The act has gone through numerous amendments with the act presently in force is the Income Tax Act No 58 of 1962 which contains provisions for four different types of income tax. These four types of tax are:
- normal tax
- donations tax
- secondary tax on companies
- withholding tax
Normal tax
Normal tax in South Africa is a levy imposed on all persons in the form of an annual tax that is calculated by applying predetermined rates to a person's taxable income. This type of income tax can be divided into individual income tax and company income tax.Individual income tax
Individual income tax rates in South Africa range from 18% (for income below R150 000 p.a) to 40% (for amounts over R580 000), although the tax threshold of R59 750 means that anyone earning less than this amount pays no income tax. Individuals earning less than R120,000 a year do not need to declare their not to submit an income tax return so long as their remuneration is from a single employer, their remuneration is for the full tax year and no allowance was paid, from which PAYE was not deducted in full with regards to travel allowance.
In 2009 there were 3.5 million assessed taxpayers with a total taxable income of R632.6 billion, of that they were liable to pay R154.1 billion. Of them 28.8% were between 35 to 44 years old and 56.7% were male, 3.9% (136,124) of them had business income. Over 60% of taxable income came from salaries, wages and remuneration. Travel allowances were the largest allowance claim, the largest fringe benefit was medical aid paid on behalf of employees and contributions to retirement funds were the largest tax deductions. Although the number of tax payers has increased most taxpayers fall below the R120,000 taxable income threshold and so are not required to submit an income tax return and are therefore not included in the 3.5 million assessed taxpayers.
| Taxable Income (in Rands South African rand The rand is the currency of South Africa. It takes its name from the Witwatersrand , the ridge upon which Johannesburg is built and where most of South Africa's gold deposits were found. The rand has the symbol "R" and is subdivided into 100 cents, symbol "c"... ) | Rate of Tax |
|---|---|
| 0 – 140 000 | 18% of taxable income |
| 140 001 – 221 000 | R 25 200 + 25% of the amount above R140 000 |
| 221 001 – 305 000 | R 45 450 + 30% of the amount above R221 000 |
| 305 001 – 431 000 | R 70 650 + 35% of the amount above R305 000 |
| 431 001 – 552 000 | R 114 750 + 38% of the amount above R431 000 |
| 552 001 and above | R 160 730 + 40% of the amount above R552 000 |
Company income tax
The company income tax rate is levied at 28% of the taxable income of the company. Certain companies qualifying as a small business corporation were tax is levied at 10% for taxbale income above R 59,750 up to a limit of R 300,000 and 28% on taxable income above R 300,000. Employment companies pay a tax of 33%. Dividends are subject to an additional tax called the Secondary Tax on Companies which is 10% of declared dividends.
In the 2009 tax year 34.2% of 473,034 companies in South Africa had taxable income. Of them 56.5% of the tax was paid by 222 large companies with a taxable income in excess of R200 million. Around 50% of the collectively assessed companies were from the finance, retail and wholesale trade sectors and were responsible for over 35% of this tax. The mining and quarrying sector -consisting of only 0.3% of the companies assessed- shrunk from 8.6% in 2006 to 5.7% in 2008 refecting the declining importance of the mining sector to the South African economy
Economy of South Africa
The economy of South Africa is the largest in Africa, accounts for 24% of its Gross Domestic Product in terms of PPP, and is ranked as an upper-middle income economy by the World Bank, which makes the country one of only four countries in Africa represented in this category...
.
Donations tax
Tax on donations is linked to Estate Duty which was first introduced in South Africa in 1955. It is not a tax on income but rather on the transfer of wealth but differs from estate duty in that it specifically taxes gifts and donations as opposed to inherences. This tax subjects certain donations made by persons to a flat rate of 20%.Secondary tax on companies
Secondary Tax on Companies - otherwise known as STC- is a policy tax imposed by government with the aim of encouraging companies to retain profits instead of giving out dividends. It takes the form of a 10% tax on the net dividend distributed by companies and closed corporations.Withholding tax
Withholding taxWithholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
, also called retention tax, is a government requirement for a South African payer of an item of income to a non-resident in South Africa to withhold or deduct tax from the payment, and pay that tax to the government. This tax can be divided into two categories:
- A withholding tax on royalties of 12% unless double taxationDouble taxationDouble taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...
agreements apply. - A withholding tax on payments for fixed property which applies to any person who must pay a non-resident for immovable property in South Africa. This tax ranges between 5% to 10%.
Estate duty
Estate duty is similar to donations tax in that it is a tax on the transfer of wealth. The duty is charged on the death of a person and is based up the value of the deceased's estate at the date of their death. It is 20% on the amount remaining in the deceased’s estate over R1.5 million.Capital gains tax
First introduced on 1 October 2001, capital gains tax is a portion of the net gain added to the taxpayer's taxable income from the increase in value of an asset that was disposed of for more than its base cost. The proportion of this net gain is added to the individual’s income tax (see normal tax). For individuals, deceased estates and special trusts 25% of the net gain is added to their taxable income. For companies, close corporations and trusts 50% is added. This tax is carried forward to the following years.Indirect taxation
Indirect taxes are taxes which are levied on transitions rather than on persons (whether individuals or corporate).Value Added Tax (VAT)
Value Added TaxValue added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
(VAT)is a broad tax made by vendors on the supply of goods and services that is charged upon purchase. VAT must be paid irrespective of whether or not it is a capital good
Capital good
A capital good, or simply capital in economics, is a manufactured means of production. Capital goods are acquired by a society by saving wealth which can be invested in the means of production....
or trading stock so long as the vendor uses the goods in his/her enterprise. It was first introduced in South Africa in its current form on 29 September 1991 at a rate of 10%. Currently VAT is set at 14%. If given price on an item charged by a vendor does not mention VAT then that price is deemed to include VAT.
In 2009/10 fiscal year about 72% of the 685,523 registered VAT vendors were active. Over 55% of VAT vendors had a turnover of less than R1 million.
Fuel levy
The fuel levy in South Africa represents a tax paid at the pump on fuelFuel
Fuel is any material that stores energy that can later be extracted to perform mechanical work in a controlled manner. Most fuels used by humans undergo combustion, a redox reaction in which a combustible substance releases energy after it ignites and reacts with the oxygen in the air...
, predominantly processed fossils fuels like petrol and diesel. In 2011 this tax represented about 29.6% of the price of 93 octane petrol and 30.3% of the price of diesel.
5% of the total fuel price paid at the pump in South Africa goes to the Road Accident Fund
Road Accident Fund
The Road Accident Fund in South Africa is a state insurer established by statute. It provides insurance cover to all drivers of motor vehicles in South Africa in respect of liability incurred or damage caused as a result of a traffic collision. Liability incurred in relation to property damage is...
which is a state insurer that provides insurance cover to all drivers of motor vehicles in South Africa in respect of liability incurred or damage caused as a result of a traffic collision.