The word TAX
Tax’s… You might have heard scary things about Tax’s. Do you know what they are?
I would like to introduce this word, TAX, to you in a friendly manner so you do not get shivers down your spine when you see this word. Below is a guide for you to learn that TAX is your friend, and not your enemy.
Business owners have to pay over TAX, as well as once you earn an income. Your income must be over a certain percentage, then you are liable. Certain facts will determine the amount to pay over to the Government, known as SARS, South African Reserve Bank, in South Africa.
Why Pay Taxes?
Schools and Parks, seen them in areas? who pay fort hem? Or who oversees paying for and maintaining roads? In short, you are! That is, if you are old enough to pay taxes. Taxes are ways that the government can collect money from its citizens to pay for things that the people need, like schools and roads.
Use of Taxes
The use of taxes has been around for centuries, dating back to the first human civilisations. In ancient Mesopotamia, taxes were paid in the form of animals or goods, since formal money had not yet been invented. Over the years, different forms of money were invented, and the collection of taxes continued.
Let’s find out more about the collection and purpose of taxes.
Let’s say that you have an income of R10.00 an hour, and you are working ten hours a week after school. Because you’re an ace in maths class, you know that ten times ten is 100. So, your first pay check should be R100.00 right? Unfortunately, you won’t bring home R100.00.
The Government collect taxes from your income, from the amount of money you earn. This is just a basic example. You have to earn above and over a certain percentage to be liable to pay TAX.
Local Government Tax
So, you are an Entrepreneur or have a great job, and once you’re old enough, you would like to buy a car or a house. This type of tax is called property tax, and it is paid to local Governments. As home owner you are required to pay property tax until you sell it. Same for your Business, which we will describe in the Unit, as Entrepreneurs Tax.
There is a good reason to pay Tax, as some of it is used to help pay for roads, schools, hospitals and other Government services. Pensions, and certain Grants also come out of the TAX’s collected.
SARS manages the collection of taxes and ensures that all working citizens contribute fairly.
Who Pay’s Tax
Tax operates on a residency-based taxation system, meaning that tax residents (whether permanent or temporary) pay Tax on their worldwide income. Official residents include those with South African citizenship or a residence permit. You are also considered a resident for tax purposes if you have lived in South Africa for more than 91 days in each of the last five tax years, and at least 915 days in total, across those five years.
All homeowners, even non-resident, must also register, they are liable to pay capital gains tax on immovable property, in South Africa.
SA Tax Resident
If you qualify as a tax resident in South Africa, you will need to register as a taxpayer. Visit your local SARS branch to verify your identity, address and bank details, or an employee may arrange this for you.
Just in case you are thinking to perhaps become an Entrepreneur, we have a well designed program on Business Plans as well. Entrepreneurs Tax guide’s are available also, regarding your own Business Tax Laws.
Filing Your Tax Return
Residents who pay taxes in, must complete an Annual Tax Return Form. The only exemptions from this, are those earning under ZAR 350,000 gross salary from a single employer. NOTE, with no additional sources of income and no deductions they want to claim.
The tax year runs from 1 March to 28/29 February. The tax season, when people are required to submit their tax return forms, is from July to November.
Deducted from Wages
These are required to make the necessary payments along with their tax returns:
- Entrepreneurs Tax
This will be any amount owed that hasn’t been paid through the Pay-As-You-Earn (PAYE) system, where your tax contributions are automatically deducted from your wages.
Under the South African tax system, taxpayers are liable to individual taxes, taxes on assets and wealth, and corporate taxes if applicable.
This is the main form of tax in South Africa for individuals. The following sources earnings are tax deductible:
- employment income including salaries, bonuses, overtime and taxable benefits and allowances (in most cases deducted from wage payments by employers through PAYE)
- profits or losses from a business or self-employed trade
- director’s fees
- rental income
- investment income such as interest or dividends
- pension income (excluding foreign pensions)
- certain capital gains.
Personal Income Tax
This is the money you pay to government from your salary or wages.
- Personal income tax rates:
Range from 18% (for income below R188,000 p.a.) to 41% (for amounts over R701,300)
- The tax threshold of R75,000
For persons below age 65 no pays no income tax.
Anyone earning less than this amount pays no income tax.
Provisional Tax is a system that requires taxpayers to pay at least two advanced amounts of South African tax throughout the year of assessment, based on estimated taxable income. The final payment will be payable following submission of your tax return. This is for Entrepreneurs Tax as well.
All companies are liable to pay provisional tax, along with individuals receiving income other than PAYE salaries.
Value Added Tax or VAT is an indirect tax on the consumption of goods and services in the economy. The VAT rate in South Africa is currently 15 percent on the supply of most goods and services (with some exemptions) and on imported goods.
Businesses must register for VAT if their annual turnover exceeds ZAR 1 million. One can also register voluntarily if you wish. Businesses are responsible for paying VAT to the Government, but they can pass on this charge to their customers or clients by adding VAT to the cost of invoiced goods and services.
Capital Gains Tax
Capital Gains Tax is not a separate tax in South Africa but forms a part of income tax that’s applicable to both individuals and companies. The same applies when selling assets, Capital Gains Tax apply.
Dividend Tax is imposed on dividends payments to shareholders. The tax rate for this is 15 percent. This is a separate tax that is withheld from the dividend payment by the company making the payment. So it is not something that needs to be accounted for nor paid by the payment recipient.
Tax Rates Property and Wealth
Estate Duty Tax Rates
Inheritance Tax is the name given for Estate Duty. This is a property tax payable on all estates with a net worth in excess of ZAR 3.5 million. The tax rate in South Africa for estate duty is 20 percent of the value above the threshold.
Those who retire to South Africa will be liable to pay estate duty on property, wherever it is situated, in the event of their death. Although properties located outside of South Africa are exempt if they were acquired prior to residency or were inherited from or donated by someone who is not a South African resident.
Property located within South Africa is subject to the same estate duty whether it is owned by a South African national or a foreigner.
Avoid Double Tax
The South African government has agreements to avoid double death duties with the:
Donations Tax Rates
Donations Tax is a property tax payable on the value of any property disposed of as a donation. This is a flat tax rate in South Africa currently set at 20 percent of the donated property value. This is payable by the donor. It needs to be paid by the end of the month, following the month in which the donation was made. If payment is not made within the set period, then both donor and donee become jointly liable.
A donation is exempt if the total yearly value of donations does not exceed:
- ZAR 100,000 for individuals
- ZAR 10,000 for businesses
Transfer Duty is another property tax in South Africa, payable on any property acquired in a sales transaction. The South African tax rates for transfer duty are progressive, with all property valued below R750,000 exempt. This rise to a maximum payment of ZAR 937,500 on property valued over ZAR 10 million, plus 13 percent of the value exceeding ZAR 10 million.
Transfer duty is payable by the person acquiring the property. This should be paid within six months from the date of acquisition to avoid incurring interest.
Company – Entrepreneurs Tax
Corporate Income Tax
All businesses with a certain income must pay business tax
- listed and unlisted public companies
- private companies
- close corporations
- collective investment schemes
- small businesses
- share block companies
- body corporate
- public benefit companies
- dormant companies
Turnover tax is an alternate, Entrepreneurs Tax, simplified method of taxation for small businesses with an annual turnover of ZAR 1 million or less. It replaces income tax, capital gains, dividends tax and VAT although there is an option to remain in the VAT system.
The turnover tax rates are progressive, ranging from zero tax paid on annual turnover below ZAR 335,000, up to a payment of ZAR 6,650. Also, on turnover above ZAR 750,000 plus 3 percent of the amount above ZAR 750,000.
Skills Development Levy (SDL)
Skills Development Levy is a tax payable by employers, as Entrepreneurs Tax, to promote learning and development of employees. Employers become liable for SDL if their total annual salary bill is more than ZAR 500,000.
1 Percent of the total salary bill, is charged to employers. This fee is used for skills development of employees. (SDL) Employers pay this over to SARS monthly.
Unemployment Insurance Fund (UIF)
Unemployment Insurance Fund is an unemployment benefit fund payable to those who have been in employment for at least 24 hours per week. This is for if they become unemployed, sick or take maternity leave, they can claim this back.
UIF is a short-term, contributions-based benefit. Funded through contributions of:
2 percent of the employee’s salary :
- 1 percent from the employer
- 1 percent from the employee.
It is the employer’s responsibility to pay this out of employee salaries each month to SARS.
Indirect Tax Rates
Customs Duties are taxed on imported goods with the aim of raising revenue and protecting the local market. This is an indirect tax paid in addition to VAT. It is usually calculated as a percentage of the value of goods. However, certain food, drink, textile and firearms products may be taxed according to volume.
Excise Duties and Levies
Excise Duties and Levies are imposed on high-volume daily consumable products (e.g. petroleum, alcohol, tobacco) as well as some non-essential and luxury items (e.g. electronic equipment, cosmetics). In addition to raising revenue, this indirect tax exists to discourage consumption of products considered harmful to health or the environment. The rates of these taxes vary from product to product.
Petrol and diesel have an indirect tax paid from using them. The current South African tax rate for fuel tax is 30.79, as at July 2018. This varies due to supply and demand over time.
Air Passenger Tax
The Air Passenger Tax is another indirect tax on international flights, currently levied at the rate of ZAR 190 per passenger (ZAR 100 for flights to Botswana, Lesotho, Swaziland and Namibia). Passengers pay airport tax included in their flight fees. The airlines pay it over to government authorities.
Tax Rates on Industry
Securities Transfer Tax
Securities Transfer Tax is a tax levied on every transfer of either, a share or depository receipt in a company, or a member’s interest in a close corporation. The rate as on July 2018 for this is 0.25 percent.
When listed securities are transferred through or from a member or participant, the member or participant is liable for the tax payment. The transfer of any other listed security will result in the person to whom the security is being transferred being liable. With unlisted securities, the company that issued the security is liable for the payment. Payments need to be made within a month of the transfer for listed securities and within two months for unlisted securities.
Withholding Tax on Interest or Royalties
- These are two taxes charged on interest or royalties paid for the benefit of a foreign person outside South Africa.
- The tax rate for this is 15 percent.
- The foreign person is liable for the tax, but it must be withheld by the person making the payment.
- There are certain exemptions.
Diamond Exports Levy
The South African tax rate on diamond exports is 5 percent. Dealers and producers exporting diamonds have an export tax levy introduced from 2008.
International Oil Pollution Levy
The international oil pollution levy is a tax payable by those receiving crude or heavy fuel oil more than 150,000 metric tonnes per anum. Taxes depend on amounts of oil received.
Mineral and Petroleum Resource
This is a tax payable by those mining for or extracting resources from South Africa. Current Mineral and Petroleum Resources Tax rates are up to 5 percent for refined mineral resources, and up to 7 percent for unrefined mineral resources.
It is simple, Pay King Ceaser what has to be paid. Else, you might find yourself on the wrong side of the Law, and that would not be good having Lawsuits behind you, as an Entrepreneur.
Source for above:
- SARS Client Segments
- Customs Excise
- Economic Times
Please leave any comment if you would like to share your experiences regarding TAX we can perhaps all learn from as well. Look forward to hearing from you.