Introduction to Taxation (part 1)
By the end of this week, you should be able to:
Explain the different taxes that a person may have to pay
Know the foundations of the South African tax system
Understand the role taxation and tax revenues play in supporting
economic activity
Explain what normal/income tax is
Understand the different components that are used to calculate
taxable income
Perform a basic taxable income and normal tax calculation,
including applying rebates
Understand the differences between companies and individuals
Calculate a capital gain or loss
Identify the impacts of an assessed loss
Introduction and normal tax
What is taxation?
• Method of the state collecting funds to fund the major departments
of country, make services available, and redistribute wealth
Tax Avoidance vs Tax Evasion
Tax avoidance is legal. It is the legal use of tax laws and rules in
such a way that it reduces your tax burden and results in you paying
the lowest possible tax. Even though it is not illegal, tax avoidance
is not always ethical, and SARS targets aggressive tax avoidance
Tax evasion on the other hand is taking illegal steps to avoid
paying tax. For example, understating the amount of tax you owe. If
you are caught for evading taxes the result is usually criminal
charges and high penalties
,Direct vs Indirect Taxes
Direct taxes are taxes that the individual pays directly to the tax
authority (SARS), such as normal tax (income tax).
- This includes taxes that are withheld (such as the portion of tax
from your income not paid to you).
Indirect taxes are taxes where the amount is paid to another
person, who then pays it over to SARS.
- This includes VAT, and things such as excise duties (on alcohol
and tobacco)
• Persons
– Natural, companies (juristic persons), estates, trusts, and non-
profit taxpayers
• Direct taxes
– Paid directly to SARS
– E.g., Income tax
• Indirect taxes
– Paid to another person who collects and pays it over to SARS
– E.g., VAT
The examinable taxes in Business Accounting are normal tax (individuals
and companies) and VAT.
Dividends’ tax is examinable to a very limited extent.
Direct taxes
• Income Tax (normal tax) – highest amount of tax
• Capital gains tax (form part of normal tax)
• Dividend’s tax
• Donation’s tax
• Withholdings taxes
, Normal tax principles
Any person who earns a taxable income is subject to normal tax on
their income (also called income tax)
For individuals, this will be applicable if your income exceeds a
certain amount
This taxable income is calculated using a framework, made up of
several elements, calculated in accordance with the law, called the
Income Tax Act
The amount calculated is then payable to SARS
In tax, each year is called the ‘year of assessment’
For individuals, the year of assessment is 28/29 Feb each year. A
company’s year of assessment is the same as its financial year for
accounting purposes
For Business accounting, you will be examined on the 2022 YOA – this
means 28 February 2022 for individuals, and up to 31 December 2022 for
companies.
• Tax is driven by law – the Income Tax Act dictates how to calculate
normal tax, which is then paid to SARS
• These elements form part of a taxable income framework
Normal tax components
Companies are one of the crucial contributors to the National
Revenue Fund.
By the end of this week, you should be able to:
Explain the different taxes that a person may have to pay
Know the foundations of the South African tax system
Understand the role taxation and tax revenues play in supporting
economic activity
Explain what normal/income tax is
Understand the different components that are used to calculate
taxable income
Perform a basic taxable income and normal tax calculation,
including applying rebates
Understand the differences between companies and individuals
Calculate a capital gain or loss
Identify the impacts of an assessed loss
Introduction and normal tax
What is taxation?
• Method of the state collecting funds to fund the major departments
of country, make services available, and redistribute wealth
Tax Avoidance vs Tax Evasion
Tax avoidance is legal. It is the legal use of tax laws and rules in
such a way that it reduces your tax burden and results in you paying
the lowest possible tax. Even though it is not illegal, tax avoidance
is not always ethical, and SARS targets aggressive tax avoidance
Tax evasion on the other hand is taking illegal steps to avoid
paying tax. For example, understating the amount of tax you owe. If
you are caught for evading taxes the result is usually criminal
charges and high penalties
,Direct vs Indirect Taxes
Direct taxes are taxes that the individual pays directly to the tax
authority (SARS), such as normal tax (income tax).
- This includes taxes that are withheld (such as the portion of tax
from your income not paid to you).
Indirect taxes are taxes where the amount is paid to another
person, who then pays it over to SARS.
- This includes VAT, and things such as excise duties (on alcohol
and tobacco)
• Persons
– Natural, companies (juristic persons), estates, trusts, and non-
profit taxpayers
• Direct taxes
– Paid directly to SARS
– E.g., Income tax
• Indirect taxes
– Paid to another person who collects and pays it over to SARS
– E.g., VAT
The examinable taxes in Business Accounting are normal tax (individuals
and companies) and VAT.
Dividends’ tax is examinable to a very limited extent.
Direct taxes
• Income Tax (normal tax) – highest amount of tax
• Capital gains tax (form part of normal tax)
• Dividend’s tax
• Donation’s tax
• Withholdings taxes
, Normal tax principles
Any person who earns a taxable income is subject to normal tax on
their income (also called income tax)
For individuals, this will be applicable if your income exceeds a
certain amount
This taxable income is calculated using a framework, made up of
several elements, calculated in accordance with the law, called the
Income Tax Act
The amount calculated is then payable to SARS
In tax, each year is called the ‘year of assessment’
For individuals, the year of assessment is 28/29 Feb each year. A
company’s year of assessment is the same as its financial year for
accounting purposes
For Business accounting, you will be examined on the 2022 YOA – this
means 28 February 2022 for individuals, and up to 31 December 2022 for
companies.
• Tax is driven by law – the Income Tax Act dictates how to calculate
normal tax, which is then paid to SARS
• These elements form part of a taxable income framework
Normal tax components
Companies are one of the crucial contributors to the National
Revenue Fund.
