Taxation in South Africa
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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 2012/2013 fiscal year SARS collected R813.8 billion (equivalent to US$ 73.1 billion) in tax revenue, a figure R71.2 billion (or 9.6%) more than that from the previous fiscal year. In 2012/13 financial year South Africa had a tax-to-GDP ratio of 25.3% reflecing a marginal increase from 25% in 2011/12.
|Type of tax||Amounts in billions of Rands||percentage of total|
|Income from direct taxes for 2012/13|
|Personal Income Tax||R276.67 bn||34%|
|Company Income Tax||R160.89 bn||19.7%|
|Secondary taxes on companies & Dividends||R9.81 bn||1.2%|
|Income from indirect taxes for 2012/13|
|Fuel levy||R40.41 bn||4.9%|
|Customs duties||R38.99 bn||4.7%|
|Specific excise duties||R28.37 bn||3.4%|
Direct taxes are taxes which are imposed on individuals, trusts, deceased estates, companies and close corporations; all of whom are otherwise known as persons.
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 By law all employers have to register all employees as taxpayers regardless of their tax liability. In terms of individual income tax South Aficans pay the 31st highest average income tax rate in the world.
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 (otherwise known as Personal income tax) rates in South Africa range from 18% (for income below R188,000 p.a) to 41% (for amounts over R701,300), although the tax threshold of R75,000 (for persons below age 65) means that anyone earning less than this amount pays no income tax. Individuals earning less than R75,000 (2016) 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 2012/13 there were a total of 13.7 million registered individual taxpayers. There were a total of 5.1 million assessed taxpayers in 2012/13 with total taxable income of R1 trillion, of that they were liable to pay R206.7 billion. 40.1% of assessed taxpayers were registered in Gauteng Province and 27.3% of them employed in finance, insurance, real estate, or the business service sector. 27.5% of them were aged 35 to 44 and 5.7% or 289,476 declared a business income.
- R59,750 for people below the age of 65.
- R93,150 for people aged between 65 and 75.
- R104,261 for people aged 75 and above.
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 and 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 R63,556(2013) 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
In 2015/16 financial year out of a total 33 million eligible tax payers around 10% or 3.3 million people paid 93% of total income tax collected in that period. Of them 1.1 million or 3.7% of all income tax payers paid just under 70% of all income tax collected in that period. This means that South African income tax receipts are highly reliant on a relatively small number of high income tax payers.
|Taxable Income (in Rands)||Rate of Tax|
|0 – 188,000||18% of taxable income|
|188,001 – 293,600||R33,840 + 26% of taxable income above R188,000|
|293,601 – 406,400||R61,296 + 31% of taxable income above R293,600|
|406,401 – 550,100||R96,264 + 36% of taxable income above R406,400|
|550,101 – 701,300||R147,996 + 39% of taxable income above R550,100|
|701,301 and above||R206,964 + 41% of taxable income above R701,300|
|Province||Total number of tax payers||Average taxable income||Total taxable income||Percentage of total taxable income|
|Eastern Cape||440 406||R193 931||R85.41 billion||7%|
|Free State||258 998||R178 251||R46.17 billion||3.9%|
|Gauteng||1 847 903||R272 188||R502.98 billion||42.6%|
|KwaZulu-Natal||707 335||R208 142||R147.23 billion||12.5%|
|Limpopo||261 252||R196 862||R51.43 billion||4.4%|
|Mpumalanga||301 871||R212 113||R64.03 billion||5.4%|
|Northern Cape||111 572||R184 038||R50.97 billion||4.3%|
|North West||276 937||R187 702||R20.94 billion||1.8%|
|Western Cape||801 441||R228 053||R182.77 billion||15.5%|
|Unknown province||166 857||R177 602||R29.63 billion||2.5%|
Company income tax
The company income tax rate is levied at 26.67%(According to the Company Law No. 71 of 2008) of the taxable income of the company. Certain companies qualifying as a small business corporation where tax is levied at 10% for taxable 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 were subject to an additional tax called the Secondary Tax on Companies which was 10% of declared dividends. This tax was replaced by Dividend Tax on 1 April 2012; however Secondary Tax on Companies credits can be used until 31 March 2015.
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 reflecting 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
Dividends Tax 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 15% tax on receipt of dividends given by companies and closed corporations. Some of the recent growth in this tax revenue for 2012/13 occurred due to increases in the value of taxable economic activities and higher compliance rates even though this tax rate remained the same.
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 R3.5 million.:7
Capital gains tax
First introduced on 1 October 2001, capital gains tax is effectively charged by adding a percentage of the increase in value of an asset, that was disposed of for more than its base cost, to the taxpayer's taxable income (see normal tax). For individuals, deceased estates and special trusts 40% of the net gain exceeding R 40 000 exclusion for individuals is added to their taxable income. For companies, close corporations and trusts 80% is added. Net capital losses in any given year cannot be used as a set-off against ordinary income; but can be carried forward to the following years to be used as a set-off against future capital gains.
Indirect taxes are taxes which are levied on transactions 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's compulsory for a business to register VAT remission when the value of taxable supplies in a 12-month period exceeds or is expected to exceed R1 million. Value Added Tax (VAT) was first introduced in South Africa 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.
Centenary of income tax
During 1914, General Jan Smuts, in his capacity as Minister of Finance, tabled legislation in the Parliament of the Union of South Africa, introducing income tax in the country, with the Income Tax Act of 1914. Taxpayers in the Union of South Africa became liable to pay income tax, with effect from 20 July 1914. In 2014, 20 years since South Africa became a full democracy, the University of Cape Town marked that milestone, of the introduction of income tax in South Africa, with the "INCOME TAX IN SOUTH AFRICA: THE FIRST 100 YEARS 1914 – 2014" conference and later, a publication of papers presented.
- "2013 Tax Statistics" (PDF). South African Revenue Service. October 2013. Retrieved 22 October 2013.
- "US dollar / ZAR exchange rate for 5 Feb 2014". xe.com. Retrieved 5 February 2014.
- "2013 Tax Statistics - Highlights" (PDF). SARS. October 2013. Retrieved 22 October 2013.
- "Preliminary Outcome of Revenue Collection for the 2010/2011 Fiscal Year". SARS. 1 April 2011. Retrieved 19 April 2011.
- "2014 Tax Statistics" (PDF). South African Revenue Service & National Treasury of South Africa. November 2014. ISBN 978-0-621-42856-8. Retrieved 3 September 2016.
- Huxham, Keith; Hauput, Philip (2004). Notes on South African Income Tax 2005. Roggebaai, South Africa: H&H Publications. ISBN 1-874929-28-9.
- "Do we pay too much income tax in South Africa?". Retrieved 2016-09-02.
- "SARS Budget Pocket Guide 2016" (PDF). South African Revenue Service. Retrieved 3 September 2016.
- "About Income Tax". SARS. Retrieved 30 August 2011.
- "2010 Tax Statistics – Highlights". SARS. 2010. Retrieved 30 August 2011.
- "Do we pay too much income tax in South Africa?". Business Tech. 21 May 2016. Retrieved 3 September 2016.
- "Taxes and VAT Refunds". South African Consolate in New York. Retrieved 30 January 2013.
- Steyn, Greta (23 February 2011). "Fuel levy hike to hit motorists". Finance 24. Retrieved 10 September 2011.
- "Fuel Levy". Road Accident Fund. Retrieved 8 October 2013.
- "Hundred Year Milestone for Taxpayers". 17 November 2014.
- "UCT Conference Celebrating a Century of Income Tax in South Africa". 17 November 2014.
- "Hundred-year milestone for taxpayers". 24 November 2014.
- "Income Tax in South Africa: The First Hundred Years (1914 - 2014)". 5 March 2016.