Tax, Interest Rates and Inflation

Question 1

What is tax

Answer 1

Compulsory contribution to the state charged by the government on income and profits, added to goods and services, and certain transactions

Question 2

Where do taxes go in South Africa

Answer 2

SARS
South African Revenue Services

Question 3

Why is tax paid

Answer 3

Government funding
Government salaries
Social and economic programs
Schools/Universities
Hospitals/Clinics
Roads
Defense and Security

Question 4

How does tax work

Answer 4

Budget speech in February explains how tax will be spent
Most tax comes from income tax
One third of tax is indirect

Question 5

Compare tax evasion and tax avoidance

Answer 5

Tax evasion - illegal method of avoiding tax
Tax avoidance - legal method of reducing tax

Question 6

Define direct tax

Answer 6

People need to contribute towards the wealth of the state in the same way they contribute to their own wealth

Question 7

Define indirect tax

Answer 7

Hidden tax in the price of goods and services

Question 8

Examples of direct tax

Answer 8

Income tax
Capital gains tax
Property tax
Transfer duty
Estate duty

Question 9

Examples of indirect tax

Answer 9

VAT
Excise duty
Custom duty/levy
Licenses
Environmental levy

Question 10

Explain income tax

Answer 10

Taxed on all income and profits
Legal obligation
Main source of revenue for the government
Based on tax tables
Paid as PAYE or Provisional Tax

Question 11

Examples of things income tax is charged on

Answer 11

Salaries
Wages
Bonuses
Business revenue
Investments
Rental income
Annuities
Pension
Capital gains
Dividends

Question 12

Explain PAYE

Answer 12

Employer subtracts from employee and pays to SARS
Tax is collected throughout the year
Paid on a monthly basis
IRP5 reflects total income for the year and total tax paid
Pension fund/Annuities deducted before tax is calculated

Question 13

Explain Provisional Tax

Answer 13

People with an irregular income (farmers and business owners)
Paid in the middle and end of year
Based on income estimates from the previous year
Final amount determined when assessed by SARS (IRP6 form)

Question 14

What is Capital Gains Tax

Answer 14

Tax paid on a secondary property or asset

Question 15

What is Property Tax

Answer 15

Paid by homeowners to municipality NOT SARS
Used for infrastructure
Based on market value of location and property value

Question 16

What is Transfer Duty

Answer 16

Paid by the buyer of a property upon registration of the property to the buyer’s name
Amount is based on the size and value of the property
No transfer on properties under R600 000

Question 17

What is Estate Duty

Answer 17

Tax paid on a person’s estate (assets and debts) after their death

Question 18

What is VAT

Answer 18

Added to all goods and services (except VAT exempt and zero rated)
All consumers pay VAT
VAT is currently 15%
VAT is paid to the state

Question 19

List VAT exempt items

Answer 19

Brown bread
Brown wheat flour
Raw eggs
Dried beans
Maize meal
Canned sardines
Fresh fruit and vegetables
Fresh/cultured milk/milk powder
Mealie rice
Samp
Lentils
Rice
Cooking oil
Legumes

Question 20

What are Excise Duties/Levies

Answer 20

Tax paid on non-essential items
Price is regulated by the government

Question 21

What are excise duties charged on

Answer 21

Fuel/Petrol products
Tobacco
Alcohol
Motor vehicles
Electronics
Perfumes

Question 22

What are Custom Duties

Answer 22

Tax paid on goods entering South Africa
Importer pays the tax to the state
Tax is recovered through the price charged to the consumer

Question 23

What are licenses needed for

Answer 23

Own a car
Watch TV
Catch fish
Hunt

Question 24

How often are licenses renewed

Answer 24

Once a year

Question 25

What are Environmental Levies

Answer 25

Levies charged on activities that are environmentally damaging
Tax benefit for activities that are environmentally beneficial

Question 26

What are Environmental Levies charged on

Answer 26

Plastic bags
Non-energy saving lightbulbs
Electricity from non-renewable sources
Carbon emissions
Tyre levy

Question 27

Define the term interest rate

Answer 27

Money paid for borrowing money

Question 28

Explain the relationship between the repo rate and the prime interest rate

Answer 28

Repo rate - rate at which commercial banks lend from SARB
Commercial banks set prime interest rate
Prime interest rate - price which commercial banks charge to borrow money
Prime interest rate correlates with the repo rate

Question 29

Explain the relationship between interest rates and inflation

Answer 29

Interest rates high - less disposable income to stimulate economy - inflation goes down
Borrowing money becomes more expensive/slows economic growth
Interest rates low - more disposable income to stimulate economy - inflation goes up
Borrowing money is easier/speeds up inflation

Question 30

Fixed interest rate vs Flexible interest rate

Answer 30

Fixed - interest can’t change even if interest rate goes up - certainty
Flexible - interest changes with interest rate - uncertainty

Question 31

Define inflation

Answer 31

Inflation is the average increase in the price of goods and services in a year
Inflation rate is the percentage increase

Question 32

What is the CPI

Answer 32

CPI is the Consumer Price Index
Measures change in economy and changes in standard of living

Question 33

How does inflation impact consumers

Answer 33

Buy less
People with fixed income
If inflation is higher than interest rate, people lose money
Fuel prices increase
Food prices increase
Unemployment