History of Tax & the Tax landscape in SA

13 February 2024
Taxati
on 2A University of Johannesburg

Introduction to taxation in South Africa

This module introduces you to taxation in South Africa.

It deals with the following concepts:
The history of taxation
Adam Smith’s four maxims
Different kinds of taxpayers and taxes
Social contract
Tax landscape
The tax process and mechanics of taxation in South
Africa

Footnote 2
 WHAT ARE TAXES?

WHY DO WE NEED TAXES?

Footnote 3
 Introduction : why do we pay tax?
But have you ever thought about who
pays for things like schools,
How often have you heard: hospitals, roads, etc?

.
It is Government’s
Why do we have to
responsibility to fund
pay tax? I work hard
social and economic
to earn my salary and
programmes, and to
then the taxman takes
provide goods and
half of
services. It needs to
it!
rebuild the country
and create an
environment in which
all can prosper.
In order to fulfill these responsibilities,
Government obviously needs
revenue!
The revenue is provided by the
taxpayers, and the Government
provides the goods and services.
This is called the social contract.

Footnote 4
The “faces” of Tax

•Economy
•Law
•Compliance
•Accounting
•Emotional
•Social contract
•Tax policy
Footnote 5
History of Taxation

VN

Footnote 6
History of taxation

•V = Violence (at first taxes only charged when a

country in War)
•N = Lady Godiva (refer to additional reading)

Footnote 7
History of taxation: Violence

•Taxes were charged to finance wars

•Once the war was over the tax was scrapped

Footnote 8
History of taxation: Africa

•African tribes – people made a “tribute in

meat” or portion of their harvest to the King or
Chief of the tribe
•The kingdoms had a tax system to help it
grow

Footnote 9
History of taxation: Medieval times

•Egypt
•Scribes
•Taxes on cooking oil
•Greece
•Tax charged during war times
•Monthly tax on foreigners

Footnote 10
History of taxation: Medieval times

•Roman empire
•Ceasar Augustus – brilliant tax strategist; introduced
an inheretance tax
•Julius Ceasar – sales tax at 1%

Footnote 11
History of taxation: Medieval times

•England
•100 year war started due to taxes
•Earliest taxes on wealthy
•But since 1643 on basic commodities (thus poor)
•Taxes so heavy that poor starved (Robin Hood)
•Tax as we know today – invented by British in 1800’s

Footnote 12
History of taxation: America

•America
•Tax on sugar
•First Income Tax during war of 1812
•1861 Tax Act by Pres Lincoln
•“People have accepted it with cheerfulness”
•Compliance – 0,728%

Footnote 13
History of taxation: South Africa

•At first not to collect revenue, but to counteract evasion of

trade monopoly.
•First taxes not on income but on sale of liquor, transfer duties
on immovable property and export duties.
•Taxes on houses, sheep, cattle and slaves.
•Poll tax on all unmarried men over 18
•Only in 1914 first Income Tax Act
•First and second World War – introduction of super tax and
express profits duty

Footnote 14
Adam Smith (1.1.2)

Four basic maxims:

•Contribute in proportion to ability
•Tax must be certain
•Levied on time that is convenient for taxpayer
•As little tax as possible levied

•Refer to additional reading

Footnote 15
The social contract
• The social contract could be described as an agreement between citizens and the state.
• The state creates prosperity and
• as a consequence, the country requires a commitment from people through tax payments.

Footnote 16
Tax landscape

• Role-players and legislation influencing the tax landscape

o Parliament (vote for amendment to Act) President (Approval of amendment to Act)
o Public participation and consultation
o Minister of Finance (specifically national budgeting process)
o National treasury (tax policy and drafting of legislation)
o South African Tax Review Committees (e.g. Margo, Katz, Davis Committees)
o SARS (tax administration)
o Political parties and unions
o Tax Ombudsman
o Professional bodies (SAICA, SAIPA and SAIT including tax practitioners)
o Taxpayers (individual, companies, financial institution, insurance, farming, mining, bank,
SME, government)
o International Tax policy organisations (OECD, IMF, World Bank, ATAF)

Footnote 17
Tax landscape

• Design features used in tax design

o Tax bases (income, wealth and consumption)
o Tax deductions, exemptions and credits
o Tax rate structures (flat tax, flat rates, proportional rates, progressive rates, marginal tax
rate, effective tax rate, and regressive tax rates)
o Tax incidence
o Tax mix (direct tax, indirect tax, group tax, user charges, levies and licenses)

Footnote 18
Tax landscape

• Different types of taxes:

• Direct vs indirect
• Tax bases:
• Consumption
• Income
• Wealth

Footnote 19
Tax landscape

• General rules of interpretation of tax legislation (1.6)

• Literal meaning

• Contra fiscum
• Remember Constitution
• Definitions
• Person
• Interpretation Act
• Anti-avoidance
• Intention of the legislature

Footnote 20
Tax landscape

• Judicial decisions (1.7)

o Legal Precedence principles
o Tax Board
o Tax Court
o Provisional Divisions of the High Court
o Supreme Court of Appeal

Footnote 21
Tax landscape

• Sources of tax legislation

o Different tax Acts and amendment Acts and Bills
o Regulations (Government Gazette)
o Judicial decisions with legal precedence
o Interpretation Notes
o Explanatory Memorandums
o Tax Rulings

• OECD model tax convention

• To prevent double taxation of
• passive income, employment income and business profits.

Footnote 22
 Introduction : who decides how much tax we should pay?
National Treasury

The Minister of Finance (Enoch Godongwana) presents the National Budget to Parliament.
The National Budget provides information about the following:
• Government’s spending requirements for the next three years and
• How this spending will be funded
Government spending is usually funded through a combination of taxes and borrowings.

Footnote 23
 Introduction : who should pay tax in South Africa?

South Africa is currently on the residence basis of taxation.

Residents will have to pay tax in South Africa on their

world-wide income.

Non-residents will have to pay tax in South Africa on

income from a source (or deemed to be) in the
Republic.

Footnote 24
 Introduction : who collects our taxes?
South African Revenue Service

SARS is an “servant” of the state. Mr. Edward Kieswetter is the

Commissioner for SARS.

SARS’ main functions include:

• The collection of revenue (taxes) due to the Government, and
• Ensuring that taxpayers comply with the country’s various tax laws
• SARS also acts as a customs agency.

Footnote 25
Introduction : Government expenditure and the National
Budget

Government expenditure
As part of his 2023 National Budget speech, the
finance Minister announced that Government’s
spending requirements for the 2023/24 fiscal
year amounts to just over R2,17 TRILLION.

Footnote 26
Types of Taxes

•Income tax (or normal tax) greatest source of

revenue for the Government.
Companies currently pay income tax at a rate of 27%
(changed from 28% to 27% on 31 March 2023)
Natural persons are subject to different rates of tax
depending on their level of taxable income. The
maximum marginal tax rate applicable to individuals is
currently 45%.

Footnote 27
Types of Taxes

•Value Added Tax (VAT) must be charged on the

supply of goods or services by persons who
are registered VAT vendors. VAT is levied at
the standard rate of 15% or at 0%.

Footnote 28
Types of Taxes

•Customs duties are charged on goods which

are imported into or exported from SA (payable
by the importer or exporter of the goods).

•Excise duties are levied on certain locally

manufactured goods, as well as on their
imported equivalents, such as tobacco, liquor,
motor cars, etc.

Footnote 29
Types of Taxes

Fuel levy - levy upon the consumption of fuel. A

portion of this levy is used for the maintenance
of our roads, while the remainder is used for
other essential services provided by
Government.

Footnote 30
Types of Taxes

•Estate duty (20%, but 25% on value >R30

million).
•Donations tax (20%, but 25% on value >R30
million).
•Transfer duty (marginal rates between 0 and
13%).
•Other taxes and duties include air passenger
tax, Skills Development Levy (SDL), and
payments to the UIF.

Footnote 31
Different types of taxes
Tax
Direct Indirect

Charged on
Charged on “persons”
transactions

Natural Different persons

persons Example:
Companies/CC/
Trusts/ Estates

Example Example
Normal Tax VAT
Footnote 32
Different kinds of Taxpayers
Natural persons
• Younger than 65
• Between 65 and 75
• Older than 75
• Taxed according to tax tables

Trusts
• Problem child
• Special trusts
• Taxed at 45%

Companies
• Includes close corporations
• Taxed at 27%
• Group of companies
• Withholding tax on Dividends

Footnote 33
Different kinds of Taxpayers
Small business corporation
• CC/Private company
• Only natural persons as shareholders
• Gross income </= R20 million
• Shareholders do not have share in other companies

Partnerships
• Legal relationship
• Not a taxpayer (Income Tax) on its own
• Can be a VAT vendor

Footnote 34
Tax Acts: How to read the Act

•Section 1 – normally definitions

•Identify:
•Scope
•Implication
•Start to read your textbook in that way.

Footnote 35
Bigger Picture for Tax 2AB

1. Value-Added Tax for first 2 weeks

2. Rest of first Semester framework to calculate Taxable
Income – focus on companies

Footnote 36