All taxation is handled through the South African Revenue Service (SARS). Until 1st January 2001, a 'source-based' tax system was in use, meaning that tax was payable only on income from (or deemed to be from) a South African source. Since then, however, South African residents have been taxed on their worldwide income. This includes the income of a foreign-controlled company. Certain types of income from outside South Africa are exempt and credit is allotted for foreign taxes paid. Non-South African residents, however, are still taxed only on South African-source income. Individuals are deemed to be resident in South Africa for tax purposes if they normally live in the country or are in South Africa for more than 183 days a year. Each individual is taxed separately in South Africa, with no distinction between male and female, or between married and single people.
The tax year is 1st March to 28th (or 29th) February. Tax is payable in installments by companies, close corporations and those individuals who are classified as provisional taxpayers (e.g. directors of companies and members of close corporations). Individuals make two provisional payments based on estimated tax liability (in relation to previous years' payments): the first due six months after the beginning of the assessment year (i.e. by the end of August), the second at the end of the assessment year (by the end of February). Late payment results in a penalty and interest is payable. If the total paid is less than the amount due, a final payment must be made within seven months of the end of the assessment year (i.e. by the end of September). Interest (non-deductible) is due on the shortfall at a decreed rate (currently 11.5 per cent). If the amount paid exceeds the amount due, the overpaid amount is refunded and interest on is paid to the taxpayer - but at a considerably lower rate (currently 7.5 per cent) - and the interest is taxable for resident taxpayers!
Employees' tax is deducted at source ('pay-as-you-earn') and paid by employers the tax to the authorities monthly. The tax thus deducted is a credit against the employee's total tax liability as assessed by his or her annual tax return. Under the SITE system (Standard Income Tax on Employees), people earning under R74,000 (£6,435) per year aren't required to file an annual income tax return, and the tax deducted from their salaries constitutes their total and only liability for tax. Income Tax Income tax is the government's main source of income and is levied in terms of the Income Tax Act 58 of 1962. Income tax is levied on residents' worldwide income, with appropriate relief to avoid double taxation. Non-residents are taxed on their income from a South African source. Tax is levied on taxable income that, in essence, consists of gross income less exemptions and allowable deductions as per the Act.
For the 2008 year of assessment, companies are taxed at a rate of 29%. In addition to this, secondary tax (STC) is levied on companies at a rate of 10% from 01 October 2007 on all income distributed by way of dividends. A formula tax applies to gold-mining companies. Small-business corporations (those with an annual turnover of less than R14-million) benefit from a graduated tax rate of 0% on the first R43 000 taxable income, 10% from R43 001 to R300 000 taxable income and R25 700 + 29% in excess of R300 001 taxable income, and can write off certain investment expenditure in the year in which it is incurred.
The list below is a summary of the types of taxes collected in South Africa from its residents:
Capital Gains Tax
Capital Gains Tax (CGT) was introduced in October 2001. It forms part of the income tax system and includes in taxable income capital gains made on the disposal of assets.
Value Added Tax (VAT)
Value Added Tax (VAT) is levied at a standard rate of 14% on all goods and services subject to certain exemptions, exceptions, deductions and adjustments provided for in the VAT Act 89 of 1991, as amended. VAT is levied on the supply of all goods and services rendered by registered vendors throughout the business cycle. It is the government's second biggest source of income. VAT is also levied on the importation of goods and services into South Africa. It is levied at the standard rate of 14%, but certain supplies are subject to a rate of zero or are exempt from VAT.
Customs duties are levies charged when goods are imported into or exported from South Africa. They are paid by the importer or exporter. All goods and gifts that have been acquired abroad are subject to payment of customs duty (as well as VAT) when they are brought into the country. This includes goods purchased duty-free on board aircraft and ships, or in duty-free shops. South Africa is a signatory to the Southern African Customs Union (SACU) agreement, as are Botswana, Lesotho, Namibia and Swaziland. The five member countries of SACU apply the same customs and excise legislation, the same rates of customs and excise duties on imported and locally manufactured goods, and the same import duties on imported goods. This simplifies trade within the SACU common customs area.
Import duties, including anti-dumping and countervailing duties, are used to protect local industries. South Africa has entered into agreements on mutual assistance between customs administrations. These agreements cover all aspects of assistance, including the exchange of information, technical assistance, surveillance, investigations and visits by officials.
Excise duty is levied on certain locally manufactured goods as well as on their imported equivalents. This duty is levied as a specific duty on tobacco and liquor, and as an ad valorem duty on cosmetics, televisions, audio equipment and motor cars. Relief from excise duty is available where excisable products are exported. Relief is also available on specific farming, forestry and certain manufacturing activities.
Transfer duty is payable by individuals when they acquire property at progressive marginal rates between 0% and 8%. When property is acquired by a person other than an individual, such as a company or trust, transfer duty is payable at a rate of 10%. All transactions relating to a taxable supply of goods that are subject to VAT are exempt from transfer duty.
For the purposes of estate duty, an estate consists of all property of the deceased - including deemed property, such as life-insurance policies and payments from pension funds - wherever situated. However, the estate of a deceased non-resident consists only of his or her South African assets. The duty, at a rate of 20%, is calculated on the dutiable amount of the estate. Certain admissible deductions from the total value of the estate are allowed.
Stamp duty is levied on leases of fixed property.
Uncertificated Securities Tax
Uncertified Securities Tax is payable in respect of the issue and change in beneficial ownership of any securities that are transferable without a written instrument and are not evidenced by a certificate. It is levied at a rate of 0,25%.
Skills Development Levy (SDL)
The Skills Development Levy is a compulsory levy scheme for the funding of education and training. SARS administers its collection. The rate is 1% of a payroll and is payable by employers who are registered with SARS for employees' tax purposes, or employers who have an annual payroll in excess of R250 000. As from 1 August 2005, the amount of R250 000 has increased to R500 000.
Unemployment Insurance Fund (UIF)
The Unemployment Insurance Fund (UIF) provides short-term relief to workers when they become unemployed or are unable to work because of maternity or adoption leave, or illness. It also provides relief to the dependants of the deceased contributor in terms of the Unemployment Insurance Act. The bulk of contributions to the UIF are collected by SARS and are transferred to the fund, which is administered by the unemployment insurance commissioner.
Air passenger tax
Fee-paying passengers departing on international flights pay a tax of R110 (R120 as from 1 August 2005) and passengers flying to Botswana, Lesotho, Namibia and Swaziland pay R55 (R60 as from 1 August 2005).
Donations Tax is tax payable on the value of property disposed of by a resident by means of a donation.
The Fuel Levy is a specific excise tax imposed by the Customs and Excise Act 91 of 1964.
The Environmental Levy is essentially a tax on certain types of plastic shopping bags. The levy aims to encourage the sustainable use of these bags, which have a harmful effect on the environment.
Pay As You Earn (PAYE)
Retirement Funds Tax (RFT)
Retirement Funds Tax is tax levied on the gross interest, net rental and foreign dividend income of retirement funds - in other words, pension, provident, retirement annuity funds.
Other taxes Other taxes include provincial gaming taxes. Local governments also finance the cost of municipal services by levying rates on the value of fixed property.
Income tax rates for the assessment year ending February 2005 are as follows:
|Taxable Income (R)||Tax Rate (%)||Cumulative Tax (R)|
|Up to 74,000||18||13,320|
|74,001 - 115,000||25||23,570|
|115,001 - 155,000||30||35,570|
|155,001 - 195,000||35||49,570|
|195,001 - 270,000||38||78,070|
A primary rebate of R5,800 (£504) is available to all individuals for the tax year ending in February 2005, and a secondary rebate of R3,200 (£278) is available to those over 64. The rebates aren't available to trusts.
Local dividends from all companies and distributions from all close corporations are exempt from tax. Foreign dividends received by South African residents with a holding of less than 25 per cent in the company declaring dividends are usually taxable. The first R11,000 (£956) of interest and non-exempt foreign dividends received by individual resident taxpayers under the age of 65 is exempt from tax. The exemption rises to R16,000 (£1,391) for resident taxpayers aged 65 or over. The first R1,000 (£86.95) of the exemption applies to foreign dividends.
Foreign dividends qualify for tax exemption in the following circumstances:
Interest paid to non-residents (other than those who are residents of Lesotho, Namibia and Swaziland) is generally exempt from tax. In order to qualify, a non-resident must be absent from South Africa for not less than 183 days during the assessment year. Tax is levied at 18 per cent on monthly gross interest, non-exempt foreign dividends and net rental received by or accrued to pension, provident and retirement annuity funds.
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