Tax, Interest Rates and Inflation Flashcards
What is tax
Compulsory contribution to the state charged by the government on income and profits, added to goods and services, and certain transactions
Where do taxes go in South Africa
SARS
South African Revenue Services
Why is tax paid
Government funding
Government salaries
Social and economic programs
Schools/Universities
Hospitals/Clinics
Roads
Defense and Security
How does tax work
Budget speech in February explains how tax will be spent
Most tax comes from income tax
One third of tax is indirect
Compare tax evasion and tax avoidance
Tax evasion - illegal method of avoiding tax
Tax avoidance - legal method of reducing tax
Define direct tax
People need to contribute towards the wealth of the state in the same way they contribute to their own wealth
Define indirect tax
Hidden tax in the price of goods and services
Examples of direct tax
Income tax
Capital gains tax
Property tax
Transfer duty
Estate duty
Examples of indirect tax
VAT
Excise duty
Custom duty/levy
Licenses
Environmental levy
Explain income tax
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
Examples of things income tax is charged on
Salaries
Wages
Bonuses
Business revenue
Investments
Rental income
Annuities
Pension
Capital gains
Dividends
Explain PAYE
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
Explain Provisional Tax
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)
What is Capital Gains Tax
Tax paid on a secondary property or asset
What is Property Tax
Paid by homeowners to municipality NOT SARS
Used for infrastructure
Based on market value of location and property value
What is Transfer Duty
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
What is Estate Duty
Tax paid on a person’s estate (assets and debts) after their death
What is VAT
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
List VAT exempt items
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
What are Excise Duties/Levies
Tax paid on non-essential items
Price is regulated by the government
What are excise duties charged on
Fuel/Petrol products
Tobacco
Alcohol
Motor vehicles
Electronics
Perfumes
What are Custom Duties
Tax paid on goods entering South Africa
Importer pays the tax to the state
Tax is recovered through the price charged to the consumer
What are licenses needed for
Own a car
Watch TV
Catch fish
Hunt
How often are licenses renewed
Once a year
What are Environmental Levies
Levies charged on activities that are environmentally damaging
Tax benefit for activities that are environmentally beneficial
What are Environmental Levies charged on
Plastic bags
Non-energy saving lightbulbs
Electricity from non-renewable sources
Carbon emissions
Tyre levy
Define the term interest rate
Money paid for borrowing money
Explain the relationship between the repo rate and the prime interest rate
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
Explain the relationship between interest rates and inflation
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
Fixed interest rate vs Flexible interest rate
Fixed - interest can’t change even if interest rate goes up - certainty
Flexible - interest changes with interest rate - uncertainty
Define inflation
Inflation is the average increase in the price of goods and services in a year
Inflation rate is the percentage increase
What is the CPI
CPI is the Consumer Price Index
Measures change in economy and changes in standard of living
How does inflation impact consumers
Buy less
People with fixed income
If inflation is higher than interest rate, people lose money
Fuel prices increase
Food prices increase
Unemployment
