BLR
(TL – Tax Law)
Case law
Legislation
Examples
Definitions
Theme 1
Why do we need taxes?
There’s a relationship (social contract) between the gov and citizens:
o Citizen has responsibility to pay taxes.
o Gov has responsibility to deliver goods and services.
Is taxation reciprocal? is I pay R5000 worth of tax, do I deserve R500
worth of service delivery? NO because wealthy people pay more tax
than poorer people YET both are entitled to same amount of service
delivery.
Consti does not say that people have to pay taxes but African Charter
on Human and People’s Rights does (CH 11).
Theories why people pay taxes:
o Coercion theory: Fear/shame of getting caught.
o Economic decision making theory: looking at cost of not
Jail/reputational damage
paying taxes v cost of payment taxes. Actual monetary cost
o Social structure theory: if you grow up in law abiding family,
you’re more likely to be law-abiding (paying taxes) – same for
criminal families.
o Social justice theory: paying tax to help community/so gov can
do more for citizens.
, o Social contract theory: you pay taxes based on the service
delivery you get back, if bad service delivery – you don’t pay
tax.
What is tax?
Tax = compulsory payments that are imposed on citizens to raise
revenue in order to fund general expenditure (education, health,
house for benefit of citizens).
Overview of tax system
SA has income tax system – if you earn less than R91 250 p/y then
you don’t have to pay tax.
Gov formulates tax policy to decide level of taxation to be imposed.
Considerations for tax policy:
o (1) Tax base – the amount of tax imposed:
Amount determined by legi.
Types of tax base:
- Income tax base: tax on income earned/profits
generated by taxpayers during a year.
- Wealth tax base: tax on value of assets/property of
taxpayer (eg capital gains tax).
- Consumption tax base: tax on the amount a
taxpayer consumes (goods and services – eg
VAT/customs).
o (2) Tax rate structure:
Tax rates can be expressed in (1) percentages OR (2) per
unit.
Types of tax rates:
, - Marginal tax rate: tax rate which will apply if tax
base increases by R1.
- Statutory tax rate: tax rate that’s imposed on tax
based according to legi.
- Average tax rate: rate at which tax is paid wrt total
Total tax liability
tax base of tax payer.
Total tax base
- Effective tax rate: compare effective tax labilities of
Tax liability
different tax payers. Total profit/income
Tax rates determined by structures:
- Progressive tax rate structure: tax rate increases as
tax base increases (favoured by gov to achieve
wealth distribution) – eg income tax.
- Proportional tax rate structure: tax rate doesn’t
change even when tax base changes (flat rate
charged).
- Regressive tax rate structure: tax rate increases as
tax base decreases – eg VAT, no matter how little
you consume, you will always have to pay VAT.
o (3) Incidence of tax liability:
Who bears burden of tax?
- Person liable for tax is not necessarily person
required to pay tax (eg sometimes employers pay
on behalf of employees or companies pay VAT on
behalf of consumer).
Policy-makers must consider when making tax policy:
- On who burden will fall (increasing levies will make
life harder for citizens – esp low income families).
- Principles of taxation.
, Requirements for a good tax system – Pillars of taxation
(1) the equity principle:
o Tax should be imposed according to one’s taxable
ability/capacity (concept based on fairness – if it’s unfair,
taxpayer might not be willing to comply).
o Equity is underpinned by:
Ability to pay principle:
- Tax imposed on taxpayer should take into account
economic capacity of taxpayer (how much can they
afford?).
Benefit principle:
- Equity is established where taxpayer pays tax in
proportion to benefit received from government (via
tax revenue spending).
o Equity subdivided into:
Vertical equity: where taxpayer with greater economic
capacity bears greater burden than those with lesser
ability.
Horizontal equity: where taxpayers with equal economic
capacity bear equal tax burden.
(2) certainty principle:
o Timing, amount and manner of tax payments should be certain.
o How is certainty facilitated?
Finalised long before implementation.
Managed in transparent manner.
Applied in consistent manner.
(3) Convenience principle:
(TL – Tax Law)
Case law
Legislation
Examples
Definitions
Theme 1
Why do we need taxes?
There’s a relationship (social contract) between the gov and citizens:
o Citizen has responsibility to pay taxes.
o Gov has responsibility to deliver goods and services.
Is taxation reciprocal? is I pay R5000 worth of tax, do I deserve R500
worth of service delivery? NO because wealthy people pay more tax
than poorer people YET both are entitled to same amount of service
delivery.
Consti does not say that people have to pay taxes but African Charter
on Human and People’s Rights does (CH 11).
Theories why people pay taxes:
o Coercion theory: Fear/shame of getting caught.
o Economic decision making theory: looking at cost of not
Jail/reputational damage
paying taxes v cost of payment taxes. Actual monetary cost
o Social structure theory: if you grow up in law abiding family,
you’re more likely to be law-abiding (paying taxes) – same for
criminal families.
o Social justice theory: paying tax to help community/so gov can
do more for citizens.
, o Social contract theory: you pay taxes based on the service
delivery you get back, if bad service delivery – you don’t pay
tax.
What is tax?
Tax = compulsory payments that are imposed on citizens to raise
revenue in order to fund general expenditure (education, health,
house for benefit of citizens).
Overview of tax system
SA has income tax system – if you earn less than R91 250 p/y then
you don’t have to pay tax.
Gov formulates tax policy to decide level of taxation to be imposed.
Considerations for tax policy:
o (1) Tax base – the amount of tax imposed:
Amount determined by legi.
Types of tax base:
- Income tax base: tax on income earned/profits
generated by taxpayers during a year.
- Wealth tax base: tax on value of assets/property of
taxpayer (eg capital gains tax).
- Consumption tax base: tax on the amount a
taxpayer consumes (goods and services – eg
VAT/customs).
o (2) Tax rate structure:
Tax rates can be expressed in (1) percentages OR (2) per
unit.
Types of tax rates:
, - Marginal tax rate: tax rate which will apply if tax
base increases by R1.
- Statutory tax rate: tax rate that’s imposed on tax
based according to legi.
- Average tax rate: rate at which tax is paid wrt total
Total tax liability
tax base of tax payer.
Total tax base
- Effective tax rate: compare effective tax labilities of
Tax liability
different tax payers. Total profit/income
Tax rates determined by structures:
- Progressive tax rate structure: tax rate increases as
tax base increases (favoured by gov to achieve
wealth distribution) – eg income tax.
- Proportional tax rate structure: tax rate doesn’t
change even when tax base changes (flat rate
charged).
- Regressive tax rate structure: tax rate increases as
tax base decreases – eg VAT, no matter how little
you consume, you will always have to pay VAT.
o (3) Incidence of tax liability:
Who bears burden of tax?
- Person liable for tax is not necessarily person
required to pay tax (eg sometimes employers pay
on behalf of employees or companies pay VAT on
behalf of consumer).
Policy-makers must consider when making tax policy:
- On who burden will fall (increasing levies will make
life harder for citizens – esp low income families).
- Principles of taxation.
, Requirements for a good tax system – Pillars of taxation
(1) the equity principle:
o Tax should be imposed according to one’s taxable
ability/capacity (concept based on fairness – if it’s unfair,
taxpayer might not be willing to comply).
o Equity is underpinned by:
Ability to pay principle:
- Tax imposed on taxpayer should take into account
economic capacity of taxpayer (how much can they
afford?).
Benefit principle:
- Equity is established where taxpayer pays tax in
proportion to benefit received from government (via
tax revenue spending).
o Equity subdivided into:
Vertical equity: where taxpayer with greater economic
capacity bears greater burden than those with lesser
ability.
Horizontal equity: where taxpayers with equal economic
capacity bear equal tax burden.
(2) certainty principle:
o Timing, amount and manner of tax payments should be certain.
o How is certainty facilitated?
Finalised long before implementation.
Managed in transparent manner.
Applied in consistent manner.
(3) Convenience principle:
