SCHOOL OF ACCOUNTANCY

TAXATION 388
2023

SILKE: CHAPTERS 1 & 2

GENERAL PRINCIPLES OF TAXATION
& TAXATION IN SOUTH AFRICA

Lecturer: Prof Linda van Heerden

 General principles of Taxation
SILKE: Chapter 1

Learning Outcomes
After studying this chapter, you should be able to:
• Define and understand the concept of taxation;
• Describe the components of taxation; and
• Evaluate tax policy by applying the principles of a good tax system

Class Preparation
• Read Chapter 1 of SILKE
• Create your own summaries

The lecturer will lead and facilitate the class discussion of the prescribed material. The lecturer will
assume that students have worked through the relevant chapter prior to the lecture and the class
discussion will proceed from this basis.

Caveat
This PowerPoint presentation is the lecturer’s teaching aid and is made available to better facilitate
classroom activities, it does not replace your prescribed course material (textbook and the Income
Tax Act (hereafter referred to as ‘the Act’)). This presentation must not be treated as a summary of
the prescribed work.
 “WE” Covered in Class

Course
content
“YOU” Own engagement
with material
BEFORE and
AFTER class

Note that: all section references in these class notes refer to the Income Tax Act, unless
specifically stated otherwise.
Lecture 1
 Introduction to taxation
1. What is tax?

2. Why are taxes necessary?

3. Who is responsible for setting the tax laws?

4. Who is responsible for collecting tax and administering tax laws?

 Types of taxes DIRECT
Direct taxes: taxes levied on a person (natural persons, companies and other persons
as defined).

Normal Tax for natural persons @

Income taxes progressive tax rate structure

RSA does not have a specific wealth tax –

Wealth taxes
Transfer duty / Estate duty / Donations tax

Corporate taxes Company tax @ 28% or 27%

Estate Duty Payable on dutiable amount of estate > R3.5

million, 20% on 1st R30 million, 25% above
R30 million
 Types of taxes INDIRECT

Indirect taxes: taxes levied on transactions and that are collected by intermediaries on
behalf of the SARS

STT Securities Transfer Tax -> Purchases / transfers of securities

Customs -> Levied on imported goods

Customs & Excise Duty Excise -> “sin tax” (alcohol, tabacco)

Transfer Duty Levies on value of property acquired

VAT Value Added Tax = 15%

Levied per liter fuel sold (RAF)
Fuel Levy

Environmental taxes Plastic bags, Electricity levy, CO2

emissions levy on vehicles
Sugary Beverages Levy (SBL)2.21 cent per gram sugar > 4 gram per 100ml
SARS tax statistics: summary

Source: 2021 Tax Statistics – joint publication by National Treasury and the South
African Revenue Service ISBN: 978-0-621-49803-5
1.1 Overview: tax policy
The formulation of a tax policy is concerned with the design of a tax system that
is capable of financing the necessary level of public spending (by government)
in the most efficient and equitable manner.

Tax policy components

1.2 x 1.3 = 1.3

Tax Tax Tax
base structure incidence

Definition Rate structure Tax liability

Principles of taxation 1.4

1.2 Tax base Tax base = “Taxable amount”

• Amount on which tax is levied and requires a determination of what is taxable

Income Wealth Consumption

Income earned / Value of assets or property Amount spent on goods and

Profits generated services

Tax base amounts - examples (p. 13&14 Chapter 2.2.3)

Taxable income Value of donations Taxable supplies of goods and

(Normal tax) (Donations tax) services (VAT)
Taxable turnover Value of property Imported goods (Customs)
disposed as donation
Gross dividend Dutiable amount of Specific goods manufactured
estate and/or consumed in RSA (Excise)
Remuneration Value of property
acquired (Transfer duty)
Gross amount payable Taxable amount of
to non-resident (RSA transferred security
source)
How should taxes be levied? What do you think?

1
All taxpayers should pay the same Rand amount of
tax irrespective of their resources (wealth and
earnings)

2
All taxpayers should pay the same % of their
income in taxes

3
Higher earning taxpayers should pay a higher % of
their income in taxes.
1.3 Tax rate structure and incidence Example 1.1 (Self study)

Tax rates are expressed as:

• Fixed percentage
• Amount per unit
• Sliding scale (variable %)

Marginal tax Tax rate that will apply if the tax base increases by R1
rate
Statutory Tax rate imposed on tax base (as determined by legislation)
tax rate
Average tax Rate at which tax is paid with reference to the total tax base of
rate [ATR] a taxpayer
ATR = Total tax liability

Total tax base

Effective tax • The effective tax rate is often used as a measure to
rate [ETR] facilitate comparability between tax liabilities of different
taxpayers
ETR = Total tax liability
Total profit/
income
Progressive: effective tax rate increases as tax base increases
• Attempt to reduce economic inequalities in societies (tax burden on
high-income groups is larger)
• Used by most economies in the world

Progressive income tax rate structure

45%

40%

35%

30%

25%
ETR

20%

15%

10%

5%

0%
R 100 000 R 200 000 R 2 000 000
Income Income Income

Income (R)

Income % of income paid Amount of tax paid

in tax (ETR)
Taxpayer A R100 000 10% R10 000
Taxpayer B R200 000 20% R40 000
Taxpayer C R2 000 000 40% R800 000
Regressive: effective tax rate increases as tax base decreases
(tax burden on low-income groups is larger)

Regressive income tax rate structure

25%

20%

15%
ETR

10%

5%

0%
R 100 000 R 200 000 R 2 000 000
Income Income Income

Income (R)

Income % of income paid Amount of tax

in tax (ETR) paid
Taxpayer A R100 000 20% R20 000
Taxpayer B R200 000 10% R20 000
Taxpayer C R2 000 000 1% R20 000
Proportional: effective tax rate remains fixed regardless of changes in the tax base
(Flat tax rate that applies to all income levels or for any size tax base)

Proportional income tax rate structure

25%

20%

15%
ETR

10%

5%

0%
R 100 000 R 200 000 R 2 000 000
Income Income Income

Income (R)

Income % of income paid Amount of tax

in tax paid
Taxpayer A R100 000 20% R20 000
Taxpayer B R200 000 20% R40 000
Taxpayer C R2000 000 20% R400 000
Practice: indicate the tax rate structure in respect of A, B and C

A B C
Annual Amount % of Amount % of Amount % of
Income of Tax Annual of Tax Annual of Tax Annual
(R) paid income paid income paid income

50 000 R15 000 30% R15 000 30% 2500 5%

150 000 R45 000 30% R15 000 10% 15000 10%

300 000 R90 000 30% R15 000 5% 45000 15%

1500 000 R450 000 30% R15 000 1% 450000 30%

Type of tax rate structure:

A
ETR = Total Tax liability
B
Total profit/ income
C
Example 1.2 Tax rate structure analysis: required
Total profit before tax: R720 730
Taxable income: R700 730 (amount subject to tax) [NB! This example ignores the
impact of the section 6(2) rebates – see slide 31]
Taxable income Rate Bracket
Exceeding R488 700 but not R115 762 + 36% of the amount by which 1
exceeding R641 400 taxable amount exceeds R488 700
Exceeding R641 400 but not R170 734 + 39% of the amount by which 2
exceeding R817 600 taxable amount exceeds R641 400
Exceeding R817 600 but not R239 452 + 41% of the amount by which 3
exceeding R1 731 600 taxable amount exceeds R817 600

Tax base
Tax liability
Marginal tax rate
Statutory tax rate
Average tax rate
Effective tax rate
Type of tax rate structure
1.4 Principles of taxation
The following accepted principles of a good tax system are examinable, but the
detail thereof is self-study:
Principle Description
1.4.1 Equity Tax imposed according to one’s taxable ability/capacity
1.4.2 Certainty The timing, amount and manner of tax payments should be
certain
1.4.3 Convenience Tax should be imposed in a manner or at a time convenient for
taxpayers – paying taxes should be easy
1.4.4 Economic Tax should be designed in a manner not unduly influencing
Efficiency economic decision-making
1.4.5 Administrative The tax system should be designed in such a manner as to not
Efficiency impose an unreasonable administrative burden on the
taxpayer and the revenue authorities (Cost vs benefit)

1.4.6 Flexibility A good tax system should be designed in such a manner that it
can easily adjust in response to changing economic
circumstances
1.4.7 Simplicity Tax should be designed in a manner that is easy to understand
and apply
Lecture 2
 Taxation in South Africa
SILKE: Chapter 2
Learning Outcomes
After studying this chapter, you should be able to:
• Explain the legislative process in South Africa;
• Identify the national taxes levied in South Africa;
• Describe how tax acts are administered;
• Explain how tax law is interpreted; and
• Illustrate how tax legislation is interpreted by performing a normal tax calculation

Class Preparation
• Read Chapter 2 of SILKE
• Create your own summaries

The lecturer will lead and facilitate the class discussion of the prescribed material. The lecturer will
assume that students have worked through the relevant chapter prior to the lecture and the class
discussion will proceed from this basis.

Caveat
This PowerPoint presentation is the lecturer’s teaching aid and is made available to better
facilitate classroom activities, it does not replace your prescribed course material (textbook and
the Act). This presentation must not be treated as a summary of the prescribed work.
2.2.1 Brief history of taxation in South Africa
Self-study (read)

2.2.2 The legislative process

Self-study (read) – not figure 2.1 on p 13

2.3 Administration of tax legislation

Self-study (read)

2.4.2 Court decisions

See slides 26 and 27
2.2.3 Current tax legislation
1. Normal tax (Income tax and capital gains tax) TAX388
2. Withholding tax

3. Turnover tax
4. Dividends tax

5. Donations tax

6. Value-added tax (VAT) TAX388

7. Transfer duty

8. Estate duty

9. Securities transfer tax (SET)

10. Customs and excise tax

11. Unemployment insurance contributions

12. Skills development levies Read Silke 2.2.3 for an explanation

of the various types of taxes
2.2.3 Current tax legislation
1. Normal tax -> Income Tax Base Category (TBC)
• Normal tax on taxable income of taxpayers
• CGT

2. Withholding tax -> Income TBC

• Employees’ tax deducted from remuneration (Not in Tax 388)
• Dividend tax deducted before payment (not in Tax 388)
• Tax deducted from RSA source income of non-resident (only WHT on
interest and sale of immovable property in Tax 388)

6. Value added tax -> Consumption TBC

• VAT vendor pay output tax on taxable supplies of goods and services (sales)
• VAT vendor claim input tax on certain amounts (purchases)
 2.4 Interpretation of tax law
• Burden of proof
• S102 of the Tax Administration Act
• Burden of proof is on TP to claim exemption, deduction, abatement, set-off,
exclusion

• Constitution of the Republic of South Africa

• Supreme law in RSA
• Any law that is contrary to it = invalid
2.4.1 Tax Legislation Self-study (read)
• Regulations = Minister of Finance makes regulations on certain matters
• For example motor vehicle rate per km
• The same force as legislation -> Published in Government Gazette

• Double tax agreements

• Avoid paying double tax on the same income
• DTA enjoys preference over Act

• Definitions The Constitution – Supreme law

• Refer to s1 in Act

• The Interpretation Act Legislation

• Gives guidance if no definition in
any Act
• Court rulings also provide guidance Regulations and
notices

• Interpretation notes
Interpretation
• Interpret provisions of Act notes
• Not legislation -> serve as guidelines

• Binding General Rulings

• Provide clarity, consistency and certainty about application of Act. Have the
force of law for the Commissioner
2.4.2 Judicial decisions

Constitutional Court

Supreme Court of Appeal

Provincial
Divisions of the
High Court
Tax Court

Tax
board
2.4.3 Rules of interpretation (Legislation) Self-study (read)

The strict literal approach (‘golden rule of interpretation’)

• Literal meaning of words
• Grammatical meaning of words = intention of legislature

The purposive approach

• Required by Constitution
• Also considers: history of the provision of a tax act, its broad objectives, the
constitutional values underlying it and its interrelationship with other
provisions.
• Courts applying this approach strive to give effect to the purpose with which the
legislature enacted a particular provision.

Contra fiscum rule

Where a provision of the Act is susceptible to more than one possible meaning, the
court must follow the interpretation which favours the taxpayer (i.e. against the
fiscus)

Substance over form rule

Courts are concerned with the substance rather than the form of a transaction or
agreement.
2.5.1 Incidence of normal tax [s 5] Tax base x rate = Obligation

• Normal tax = levied on a ‘person’ [s 1 & Interpretation Act] (including

trusts, deceased and insolvent estates, CIS, companies, natural persons,
but excludes foreign partnerships).

• Collection of normal tax is facilitated through:

• PAYE
• Withholding tax
• Provisional tax

2.5.2 Rate structure of normal tax

Progressive rate Fixed rate Fixed rate
structure structure 28% structure 45%
TAX Natural persons Companies TAX Trusts (other than
388 (individuals) special trusts)
388
Deceased estates
Insolvent estates Reduces to 27% with effect from YoA
Special trusts ending on or after 31 March 2022
Normal tax rates for 2023 YoA – in SAICA legislation handbook p 281
Section 5 from the Act

Natural person
Vs
company
2.5.2 Rate structure of normal tax…(continued)
Minister of Finance: budget speech
Rates determined annually

Taxable income (R) ​Rates of tax (R) 2023 Taxable income ​Rates of tax (R) 2022
(R)
1 – 226 000 18% of taxable income
1 – 216 200 18% of taxable income
226 001 – 353 100 40 680 + 26% of taxable
income above 226 000 216 201 – 337 800 38 916 + 26% of taxable income
above 216 200
353 101 – 488 700 73 726 + 31% of taxable
income above 353 100 337 801 – 467 500 70 532 + 31% of taxable income
above 337 800
488 701 – 641 400 115 762 + 36% of taxable
income above 488 700 467 501 – 613 600 110 739 + 36% of taxable income
above 467 500
641 401 – 817 600 170 734 + 39% of taxable
income above 641 400 613 601 – 782 200 163 335 + 39% of taxable income
above 613 600
817 601 – 1 731 600 239 452 + 41% of taxable
income above 817 600 782 201 – 1 656 229 089 + 41% of taxable income
600 above 782 200
1 731 601 and above 614 192 + 45% of taxable
income above 1 731 600 1 656 601 and 587 593 + 45% of taxable income
above above 1 656 600
Companies = 28%
Source: https://www.sars.gov.za/tax-rates/income-tax/rates-of-tax-for-individuals or 27%
Not applicable
to Companies

Appendix A

Flag - Rebates

Section 6 from the Act This excerpt from the Act is only in the lecturer’s slides
 Not applicable
to Companies

Flag - Rebates
2.5.2 Rebates [s 6(2)] Calculate savings / discount on normal tax
• Natural persons only [not for juristic persons]
• Primary, secondary and tertiary -> depends on your age Not applicable on
• “Was or would have been” -> age on end of YoA company
Tax Rebate​​s

​2023 2022 ​2021 ​2020 ​2019 2018 ​2017

​Primary ​R16 425 R15 714 ​R14 958 ​R14 220 R14 067 ​R13 635 ​R13 500

​ econdary
S ​R9 000 R8 613 ​R8 199 R7 794 ​R7 713 ​R7 479 ​R7 407
(65 and older)

​ ertiary
T ​R2 997 R2 871 ​R2 736 ​R2 601 ​R2 574 ​R2 493 ​R2 466
(75 and older) Tax threshold =
Rebates (entitled)
Eg. 16 425/18%= 91 250 Tax Threshold
Lowest tax rate
​2023 2022 ​2021 ​2020 ​2019 2018 ​2017

Under 65 ​R91 250 ​R87 300 ​R83 100 ​R79 000 ​R78 150 ​R75 750 ​R75 000

​65 and older ​R141 250 ​R135 150 ​R128 650 R​122 300 ​R121 000 ​R117 300 ​R116 150

​75 and older ​R157 900 ​R151 100 ​R143 850 ​R136 750 ​R135 300 ​R131 150 ​R129 850

Source: https://www.sars.gov.za/tax-rates/income-tax/rates-of-tax-for-individuals/
Broken years of assessment (see C 7 p 161)
In the following three instances only:
• TP is born
• TP dies
• TP is declared insolvent

Effect of a broken YoA?

• s 6(4) rebates must be apportioned.
• Act: per month
• SARS in practise: Allocation calculated on number of days
Example 1: Rebates

A is 55 years old and his taxable income for the 2023 YoA is R300 000.

Calculate A’s normal tax payable for the 2023 YoA.

Taxable income (R) ​Rates of tax (R) 2023

Tax rebates ​2023
1 – 226 000 18% of taxable income
​Primary ​R16 425
226 001 – 353 100 40 680 + 26% of taxable
income above 226 000 ​ econdary
S ​R9 000
(65 and older)
353 101 – 488 700 73 726 + 31% of taxable
income above 353 100 ​ ertiary
T ​R2 997
(75 and older)
488 701 – 641 400 115 762 + 36% of taxable
income above 488 700

641 401 – 817 600 170 734 + 39% of taxable

income above 641 400 R40 680 + (R300 000 – R226 000) x
817 601 – 1 731 600 239 452 + 41% of taxable 26% = R59 920
income above 817 600
Primary rebate R16 425
1 731 601 and above 614 192 + 45% of taxable
income above 1 731 600
Therefore, normal tax payable =
R59 920 – R16 425 = R43 495
Example 2: Rebates

Assume that A died on 30 April 2022 at the age of 70 years.

What is the amount of the s 6(2) rebate he may claim in respect of the 2023 YoA?

Tax rebates ​2023

​Primary ​R16 425
​ econdary
S ​R9 000
(65 and older)
​ ertiary
T ​R2 997
(75 and older)

Primary rebate R16 425

Secondary rebate R9 000
Total yearly rebate = R25 425

Number of days entitled to a discount = March (31 days) + April (30 days) = 61 days
61/365 x R25 425 = R4 249
Section 1 from the Act
2.5.3 Tax base of normal tax
Year of assessment [s1 under ‘YoA’]
• Normal tax levied annually in respect of a YoA

• Natural persons: YoA ends on the last day of February

• 2022 YoA: 1 March 2021 – 28 February 2022
• 2023 YoA: 1 March 2022 – 28 February 2023

• The end date indicates the YoA

• Companies: YoA = financial year

Co financial year commences on 1 January and ends on 31 December each
year.
• 2022 YoA: 1 January 2022 – 31 December 2022
• 2023 YoA: 1 January 2023 – 31 December 2023

Co financial year commences on 1 July and ends on 30 June each year.

• 2022 YoA: 1 July 2021 – 30 June 2022
• 2023 YoA: 1 July 2022 – 30 June 2023
2.5.3 Tax base of normal tax (continued)
Taxable income of a natural person
The calculation of a natural person’s taxable
income, normal tax due on assessment and total tax
payable is performed in accordance with the
subtotal method (the comprehensive framework
for natural persons).
• Students must know the framework for natural
persons (see C7, p 151) and be able to apply it
correctly.
• The framework represents a specific sequence
in which amounts must be included or
deducted. The sequence is derived from the
wording of the Income Tax Act itself (in other
words the order in which items are included,
exempted or deducted is prescribed by the Act).
Certain deductions also effect specific subtotals
that have a concomitant effect on the deductions
thereafter.
• The use of the framework is not optional and
marks are awarded for its correct use.
NB! Refer to Appendix A of your module framework.
2.5.3 Tax base of normal tax (continued)
SILKE: table 2.2