ch1 general principles of taxation
Tuesday, 20 February 2024 19:21
outcomes of this chapter:
- define & understand taxation
- describe components of taxation
- evaluate the tax policy by applying the principles
overview [SILKE p.1]
the formulation of a tax policy is concerned with the design of a tax system that is capable of financing the necessary level of public
spending, by government, in the most efficient & equitable manner.
there is a relationship between a government & its citizens - this is referred to as the social compact. taxes are defined as compulsory
payments that are imposed on citizens to raise revenue i.o.t. fund general expenditure - e.g., education, health & housing for the benefit
of society as a whole.
types of taxes
1. direct taxes: taxes imposed on a person [natural persons, companies & other persons as defined]
○ income taxes
○ wealth taxes
○ corporate taxes
○ estate duty
2. indirect taxes: taxes levied on transactions & that are collected by intermediaries on behalf of SARS [persons bears tax burden, but
the intermediary pays tax over to SARS]
○ STT
○ customs & excise duty
○ transfer duty
○ value added tax [VAT]
○ fuel levy
○ environmental taxes
○ sugary beverages levy [SBL]
tax base [SILKE p.2]
the amount on which tax is imposed - this is usually determined by legislation provisions that provide guidance on what should be incl. &
excl. from the tax base. amounts incl. do not necessarily correlate with our normal understanding of economic income.
while a specific tax base will be defined within each piece of legislation, a tax base is broadly based on income, wealth, or consumption:
○ an income tax base incl. income earned or profits generated
○ a wealth tax base consists of the value of assets or the value of property
○ a consumption tax base encompasses the amount spent by taxpayers on goods & services
how should taxes be levied? [what do you think?]
i. all taxpayers should pay the same R amount of tax irrespective of their resources - wealth & earnings
ii. all taxpayers should pay the same % of their income taxes
iii. higher earning taxpayers should pay a higher % of their income in taxes - according to a sliding scale
tax rate structure & incidence [SILKE p.2] [see tax rates (SAICA) p.295 - schedule 1: rates of normal tax (section 2)]
tax rates are expressed as:
a. fixed % [e.g., value added tax has a fixed % of 15%]
b. amount per unit [excise duty on each packet of cigarettes]
c. sliding scale - variable % [natural person's income tax rate]
the following terminology is important when wanting to understand tax rates
• marginal tax rate: tax rate that will apply if the tax base increases by R1
• statutory tax rate: tax rate imposed on tax base as determined by legislation
• average tax rate: tax rate at which tax is paid with reference to the total tax base of a taxpayer
• effective tax rate: effective tax rate is often used as a measure to facilitate comparability between tax liabilities of different taxpayers
tax rates are usually determined with reference to structures
- progressive tax rate structure: tax rate increases as the tax base increases
- proportional tax rate structure: tax rate does not change in line with the tax base :. flat-rate tax
- regressive tax rate structure: tax rate increases as the tax base decreases
principles of taxation [SILKE p.5]
it is highly unlikely that a tax policy will ever be considered to be perfect, tax policy can be benchmarked against the commonly accepted
principles of a good tax system
▫ equity: taxpayer's taxable ability or capacity
ch1 Page 1
Tuesday, 20 February 2024 19:21
outcomes of this chapter:
- define & understand taxation
- describe components of taxation
- evaluate the tax policy by applying the principles
overview [SILKE p.1]
the formulation of a tax policy is concerned with the design of a tax system that is capable of financing the necessary level of public
spending, by government, in the most efficient & equitable manner.
there is a relationship between a government & its citizens - this is referred to as the social compact. taxes are defined as compulsory
payments that are imposed on citizens to raise revenue i.o.t. fund general expenditure - e.g., education, health & housing for the benefit
of society as a whole.
types of taxes
1. direct taxes: taxes imposed on a person [natural persons, companies & other persons as defined]
○ income taxes
○ wealth taxes
○ corporate taxes
○ estate duty
2. indirect taxes: taxes levied on transactions & that are collected by intermediaries on behalf of SARS [persons bears tax burden, but
the intermediary pays tax over to SARS]
○ STT
○ customs & excise duty
○ transfer duty
○ value added tax [VAT]
○ fuel levy
○ environmental taxes
○ sugary beverages levy [SBL]
tax base [SILKE p.2]
the amount on which tax is imposed - this is usually determined by legislation provisions that provide guidance on what should be incl. &
excl. from the tax base. amounts incl. do not necessarily correlate with our normal understanding of economic income.
while a specific tax base will be defined within each piece of legislation, a tax base is broadly based on income, wealth, or consumption:
○ an income tax base incl. income earned or profits generated
○ a wealth tax base consists of the value of assets or the value of property
○ a consumption tax base encompasses the amount spent by taxpayers on goods & services
how should taxes be levied? [what do you think?]
i. all taxpayers should pay the same R amount of tax irrespective of their resources - wealth & earnings
ii. all taxpayers should pay the same % of their income taxes
iii. higher earning taxpayers should pay a higher % of their income in taxes - according to a sliding scale
tax rate structure & incidence [SILKE p.2] [see tax rates (SAICA) p.295 - schedule 1: rates of normal tax (section 2)]
tax rates are expressed as:
a. fixed % [e.g., value added tax has a fixed % of 15%]
b. amount per unit [excise duty on each packet of cigarettes]
c. sliding scale - variable % [natural person's income tax rate]
the following terminology is important when wanting to understand tax rates
• marginal tax rate: tax rate that will apply if the tax base increases by R1
• statutory tax rate: tax rate imposed on tax base as determined by legislation
• average tax rate: tax rate at which tax is paid with reference to the total tax base of a taxpayer
• effective tax rate: effective tax rate is often used as a measure to facilitate comparability between tax liabilities of different taxpayers
tax rates are usually determined with reference to structures
- progressive tax rate structure: tax rate increases as the tax base increases
- proportional tax rate structure: tax rate does not change in line with the tax base :. flat-rate tax
- regressive tax rate structure: tax rate increases as the tax base decreases
principles of taxation [SILKE p.5]
it is highly unlikely that a tax policy will ever be considered to be perfect, tax policy can be benchmarked against the commonly accepted
principles of a good tax system
▫ equity: taxpayer's taxable ability or capacity
ch1 Page 1
