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Consumers > Taxes, interest rates and inflation > Flashcards

Taxes, interest rates and inflation Flashcards

1
Q

Where does government revenue mainly come from?

A

From different taxes that South Africans pay

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2
Q

Why does the state need tax revenue?

A

To fund social and economic programmes
To provide public services such as schools, universities, hospitals, clinics and roads
As well as for the defence force and security

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3
Q

Every year who presents the budget and what does this budget outline?

A

The minister of finance
The budget outlines the total government expenditure for the following financial year and how taxes will pay for this expenditure

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4
Q

Where are all taxes paid to?

A

SARS (South African Revenue Service)

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5
Q

Taxes are handed over to where to donate to distribute to government departments, provincial government and local government

A

To the National Treasury

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6
Q

Provide the definition of revenue.

A

The total amount of income available to the goverment

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7
Q

What are direct taxes and what are they based on?

A

Income tax and property tax.
They are based on the principle that people should contribute to the wealth of the state to the same extent as they are able to contribute towards their own wealth.

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8
Q

Provide the definition of a threshold.

A

The level above which income is taxable

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9
Q

What is income tax?

A

A tax which is levied on all income and profit that a tax payer receives.

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10
Q

Who are tax payers?

A

Tax payers are individuals, companies and trusts.

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11
Q

What is the governments main source of income ?

A

Income tax

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12
Q

When does the tax year begin?

A

1 March and ends on the 28/29 February

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13
Q

How is the amount of tax payable to the government calculated?

A

From tax tables which are revised annually.

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14
Q

TRUE or FALSE

Individuals who earn below the tax threshold do not pay income.

A

TRUE.

As of the 1 March 2012

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15
Q

Explain what PAYE means.

A

This is the employee tax that employers deduct from the balance of an employees full time employment income in excess of the tax threshold for a year
The amount deducted from the employees monthly remuneration is calculated from tax tables and paid to the Receiver of Revenue.

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16
Q

What is provisional tax and what is the aim of this tax?

A

It is a system which applies to taxpayers with irregular income such as farmers, business owners and people with income other than their regular salaries.
The aim is to help taxpayers to pay their tax in the form of two payments made from income received during the year instead of in the form of a single, large sum payment at the end of the tax year.
Final liability is determined upon assessment.

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17
Q

What is balance of income?

A

This is the amount of income left after deductions have been made such as medical scheme fees, pension/retirement annuity fund contributions, allowable premiums of insurance policies etc..

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18
Q

At the end of the tax year, what does SARS send you?

A

An income tax return which you must fill in and send back.
Alternatively you can register for SARS eFiling, which is a free online process for submitting tax returns and declarations.

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19
Q

When you complete your tax returns and declarations what may you deduct?

A

You may deduct certain standard tax rebates applicable to individuals

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20
Q

SARS will determine whether the money you paid monthly covers what you owe them in tax. What happens if you pay too little or too much?

A

TOO LITTLE
They will send you a bill for the outstanding amount

TOO MUCH
You will be refunded

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21
Q

TRUE or FALSE

You may have paid too little tax if you have taxable income other than from your employment.

A

TRUE

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22
Q

TRUE or FALSE
You must pay a certain amount of tax on investment income (interest received), property income (such as rentals) and on other forms of income you might have.

A

TRUE

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23
Q

TRUE or FALSE

You don’t receive rebates (refunds) for expenses such as medical expenses and the costs of running a business from home.

A

FALSE

You do receive rebates for such expenses.

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24
Q

What are tax rebates?

A

Amounts that you can subtract from the tax you calculated

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25
Q

Who pays property tax?

A

Owners of all kinds of real property, including commercial, industrial, residential and agricultural property.

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26
Q

What are property taxes?

A

> Taxes on the ownership of property (land and buildings)
Set by municipalities based on the market value of the property. Charges differ from area to area but are generally about 1 percent of the property’s market value
They are paid monthly or annually to local government (municipalities) that uses the money to fund the services it provides in the community

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27
Q

What are indirect taxes?

A

Hidden taxes in the price of goods

28
Q

Where does nearly a third of the governments total revenue come from?

A

Indirect taxes, primarily VAT

29
Q

Who pays VAT?

A

All consumers, regardless of their income

30
Q

What is VAT?

A

Value Added Tax
It is a percentage (currently 14%) added to the price of specified goods and services that businesses sell to .
The money collected in this way is paid to the government

31
Q

What are exempted goods and provide examples.

A

Goods or services which VAT is not charged

e.g. residential rental, financial services, public road and rail transport and state-owned educational services.

32
Q

What are zero rated items?

A

Goods and services that are taxed at 0%

e.g brown bread, maize products and rice, milk and milk products, eggs, fruit and vegetables.

33
Q

What is excise duty or sin tax?

A

Tax placed on the manufacture and sale of products such as tobacco and alcohol

34
Q

What is import duty levied on?

A

All goods and services entering the country from abroad. The importer pays the tax directly to the government and recovers it by adding it onto the price of the goods

35
Q

TRUE or FALSE

Licences for which you have to pay fees are a form of tax?

A

TRUE

e.g drivers licences, TV licences, fishing and hunting licences

36
Q

What is a fuel levy?

A

It is a levy paid on every litre of petrol and diesel sold in SA. It includes a levy payable to the Road Accident Fund. The levies on fuel make up about 30% of the price of petrol and diesel.

37
Q

To manage your financial resources effectively, what should you know?

A

How interest rates and inflation influence your money and its purchasing power.

38
Q

What is an interest rate?

A

The rate at which borrowers pay interest for the money they borrow from lenders, expressed as a percentage of the total sum borrowed for a specific period.

39
Q

What two aspects does interest have?

A

You earn interest on savings or when you lend money while you pay interest when using a form of credit facility such as a personal loan

40
Q

When do interest rates go up and down?

A

When the supply and demand for money changes

41
Q

TRUE or FALSE
Interest rates which rise mean that it becomes more expensive to borrow money while when interest rates fall it becomes less expensive to borrow money.

A

TRUE

42
Q

TRUE or FALSE

Interest rates on credit agreements rise and fall with the inflation rate charged by the Reserve Bank

A

FALSE

Rise and fall with the repo rate

43
Q

What is simple interest?

A

It is interest calculated on the principal amount of the loan and no interest is paid on interest received during the time of the loan. Normally used for short term loans.

44
Q

What is the repo rate?

A

Repurchase rate.

The interest rate at which commercial banks can borrow money from the Reserve Bank

45
Q

What is the prime interest rate?

A

The interest rate that banks use to determine the interest rate charged on loans to their customers

46
Q

What is the Reserve Bank?

A

The central bank of SA which holds the reserves of other banks

47
Q

What is compound interest?

A

Interest which is added to the original price amount so from that moment on the interest that has been added also earns interest.The addition is known as compounding.
Interest which is added back onto the original amount.

48
Q

How can compound interest be calculated?

A

Monthly, quarterly, semi-annually or yearly

49
Q 
TRUE or FALSE
The PIR (Prime Interest Rate) is always lower than the RR (Repo Rate) because that is how banks make their money.
A

FALSE

THE PIR is always higher than the RR

50
Q

When granting higher-risk loans (loans to people wit a lot of debt) a bank will charge a HIGHER or LOWER interest rate?

A

HIGHER

Prime plus three

51
Q

When granting lower-risk loans the bank will charge a HIGHER or LOWER interest rate?

A

LOWER

Prime minus two

52
Q

What is a fixed interest rate?

A

Th lender can only charge the same amount of interest per month throughout the duration of the loan

53
Q

What is a variable interest rate?

A

The rate will fluctuate with changes in the RR. The NCA specifies that any change in the variable interest rate of a credit agreement is only valid if it is in reference to changes in the RR

54
Q

Maximum interest for mortgage/bond agreements

A

(repo rate x 2.2) + 5% p.a

55
Q

Maximum interest for credit facilities

A

(repo rate x 2.2) + 10% p.a

56
Q

Maximum interest for unsecured credit facilitites

A

(personal loans)

(repo rate x 2.2) + 20% p.a

57
Q

Maximum interest for short term loans not more than R8000 and repayable in 6 or fewer months

A

5% per month (60% per year)

58
Q

Maximum interest for incidental credit

A

2% per month

59
Q

What is the purchasing power of money/buying power?

A

It is the value of money as measured by the quantity and quality of products and services it can buy.

60
Q

How is the value of money measured?

A

In terms of how prices have increased over a number of years.

61
Q

What is inflation?

A

The rise in the price of goods and services, measured over a specific period and subsequently a drop in the purchasing power of money

62
Q

What is the CPI?

A

The Consumer Price Index

It measures the changes in the cost of goods and services over a specific period

63
Q

How is the CPI measured?

A

By defining a basket of goods and services used by a typical household and then keeping track of the change in the cost of that basket. When the change over 12 months is expressed as percentage, it is used as a accepted yardstick for the inflation rate.

64
Q

What is the inflation rate?

A

The annual percentage change in the consumer price index

65
Q

What is the biggest effect of inflation?

A

You can buy less with the same amount of money

66
Q

List FOUR effects of inflation

A

> people on a fixed income feel the effect of inflation most if their wages and salaries do not keep up with the inflation rate i.e. a subtle decrease in our standard of living
reduction of the purchasing power of savings, especially on retired people who live from their savings
with inflation, lenders or depositors who are paid a fixed rate of interest on loans or deposits will lose purchasing power from the interest they earn. They will lose money if the inflation rate is higher than the interest rate that they earn money
anyone borrowing money for a long term at a fixed interest rate (such as a fixed rate mortgage) can benefit from the inflation. They benefit because the money they are repaying on the loan is worth less than the money they originally borrowed.

Consumers (3 decks)

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