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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 R674.2 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%.
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.
South Africa has a progressive income taxation system which is based on the premise that the wealthy should contribute a greater proportion towards supporting the State than the poor. This means that the more a person earns the higher percentage tax they pay.:2
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.:3 These four types of tax are:
- normal tax
- donations tax
- secondary tax on companies
- withholding 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 R160 000 p.a) to 40% (for amounts over R617 000), although the tax threshold of R63 556 (for persons below age 65) 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 income and do not need 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.:2
|Taxable Income (in Rands)||Rate of Tax|
|0 – 160 000||18% of taxable income|
|160 001 – 250 000||R 28 800 + 25% of the amount above R160 000|
|250 001 – 346 000||R 51 300 + 30% of the amount above R250 000|
|346 001 – 484 000||R 80 100 + 35% of the amount above R346 000|
|484 001 – 617 000||R 128 400 + 38% of the amount above R484 000|
|617 001 and above||R 178 940 + 40% of the amount above R617 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.:3
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 inheritance. This tax subjects certain donations made by persons to a flat rate of 20%.:4
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.:4
Withholding tax, 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 taxation agreements apply.:4
- 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%.:5
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 on 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.:7
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.:7
Indirect taxes are taxes which are levied on transitions rather than on persons (whether individuals or corporate).
Value Added Tax (VAT)
Value Added Tax (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%.:7 If given price on an item charged by a vendor does not mention VAT then that price is deemed to include VAT.:635
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.:4
People who are not South African passport holders and are not resident in South Africa are eligible to claim back VAT on movable goods purchased in the country provided they present a tax invoice (such as a receipt) for those goods.
The fuel levy in South Africa represents a tax paid at the pump on fuel, 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.
- "Preliminary Outcome of Revenue Collection for the 2010/2011 Fiscal Year". SARS. 1 April 2011. Retrieved 19 April 2011.
- Huxham, Keith; Hauput, Philip (2004). Notes on South African Income Tax 2005. Roggebaai, South Africa: H&H Publications. ISBN 1-874929-28-9 [Amazon-US | Amazon-UK].
- "Budget pocket guide 2011". SARS. Retrieved November 23, 2011.
- "About Income Tax". SARS. Retrieved August 30, 2011.
- "2010 Tax Statistics – Highlights". SARS. 2010. Retrieved August 30, 2011.
- "2012/2013 SARS Tax Tables". accsys. Retrieved May, 2012.
- "Secondary Tax on Companies (STC)". SARS. Retrieved November 23, 2011.
- "Taxes and VAT Refunds". South African Consolate in New York. Retrieved January 30, 2013.
- Steyn, Greta (Feb 23, 2011). "Fuel levy hike to hit motorists". Finance 24. Retrieved September 10, 2011.
- "Fuel Levy". Road Accident Fund. Retrieved September 10, 2011.