Unit 1.1 - Introduction to Income Tax (17) Flashcards
Why pay tax?
The government of any country is responsible for the safety and well being of its citizens.. In order to provide for the poor, educate children, provide basic healthcare, maintain and improve infrastructure, etc, the government needs money.
These government expenses are financed by
means of levying different forms of taxation. The SA government receives finance through a variety of different taxes.
The different types of taxation in SA (13)
- Income tax
- Turnover tax
- Secondary tax on companies (not in effect since 31 March 2012)
- Donations tax
- Dividends tax (effective from 1 April 2012)
- Withholding taxes
- Estate duty
- Value Added Tax (VAT)
- Excise and Customs Duty
- Transfer duty on property
- Marketable securities tax on shares
- Local property taxes
- Local authority taxes
The different types of taxes can be grouped according to the
parameter on which the tax is applied such as
* Tax on income (income tax)
* Tax on consumption (Vat, excise, customs duty)
* Tax on wealth (capital gains tax, transfer duty on sale of property)
Taxes can also be grouped according to the
method of calculation
* proportional tax is levied at a fixed rate such as the fixed company tax rate
* progressive taxes where the amount of tax paid is proportional to the persons income
Taxes can also be grouped according to who
is responsible for paying the tax
* Direct tax - the person whom the tax impact also pays the tax
* Indirect tax (VAT) - the vendor pays the tax over to SARS but the impact is borne by the consumer who pays a higher (VAT inclusive) price for goods
According to Adam Smith’s ‘The Wealth of Nations’ (1776) there are four basic principles with regards to taxes. (Incorporated into SA tax system)
- The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities;
- The tax that each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, manner of payment, quantity to be paid, ought to all be clear and plain to the contributor
- Each tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it
- Every tax ought to be so contrived as to both take out, and keep out, of the pockets of the people as little as possible over and above what it brings into the public treasury of the state
SA moved to a _________ basis of taxation…
residence basis of taxation on 1 Jan 2001
which means that SA citizens must pay tax on their world wide income, whereas non residents are only liable for income tax on income from or deemed to be from a SA source
Who is liable for income tax?
- Residents of SA on their world wide income
- Non residents only on income from or deemed to be from SA source
- Representative taxpayer
- Natural and juristic persons
- Foreign taxes paid by residents - credit on SA tax liablity
Both ______ and ________ are liable for income tax
Both natural persons (individuals) and legal or juristic persons (eg. companies, close corporations and trusts) are liable for income tax.
Companies, CC’s and trusts will be taxed in their own capacity, whilst income from sole proprietorships and partnerships will be taxed in the hands of the individual owners
International double taxation can be defined as
the imposition of comparable taxes in two or more countries on the same taxpayer in respect of the same income
Most developed countries are aware of this double taxation issue and have attempted to reduce the impact by
the introduction of double taxation treaties.
SA has entered into double taxation treaties with several other countries.
These treaties provide bilateral relief by stating where or how certain income must be taxed in order to avoid the taxation of the same amount in both countries.
To avoid double taxation
foreign taxes paid by residents are allowed as a credit against the SA tax liability.
Note this rebate is limited to the SA tax attributable to the foreign income that gave rise to the foreign tax (s 6quat)
Where a double tax does arise the income tax act provides for some unilateral relief
- Section 6quat - allows foreign taxes paid as a credit against SA tax liability where income which has been derived from a foreign source has been subject to tax in a foreign country
- Section 6quin (effective from 1 Jan 2012) - allows foreign taxes paid as a credit against the SA tax liability where services have been rendered by a company and taxes have been withheld by a jurisdiction with which SA has a valid double tax agreement
- Section 9D and section 10 - certain foreign income exempt from SA tax
- Section 11C(4)-(5) - allows for a deduction in respect of withholding tax paid on foreign dividends
The foreign tax rebates (s 6quat and s 6quin) are limited to
the lesser of the SA tax attributable to the relevant amount
or the foreign taxes incurred in respect of the amount.
The rand equivalent of the foreign taxes is determined by translating the foreign tax at the average exchange rate for the year of assessment
The excess foreign tax paid above that allowed as a deduction may be carried forward for a maximum of seven years
