TAX2601 Principles of Taxation Summary Guide

TAX2601
EXAM PACK

,STUDY GUIDE

PRINCIPLES OF TAXATION - TAX2601

CONTENT DOCUMENT

LEARNING UNIT 1

Introduction to the South African Tax System

CONTENTS

1.1 Background
1.2 The Income Tax Act
1.3 SARS
1.4 Types of taxation
1.5 Interpretation of tax law
1.6 Calculating taxable income

INTRODUCTION

Governments have a responsibility to promote the wellbeing of their citizens and to
provide public services. These responsibilities require financial resources. In most
countries, taxation is one of the main ways through which governments obtain the
money needed to finance public services and fulfil their responsibilities.

Taxation can take various forms. This learning unit introduces the main forms of
taxation used in South Africa and provides background knowledge on how the country's
tax system operates.

STUDY PROGRAMME

Refer to the recommended study programme provided in the “How to Study”
document. You should aim to complete Learning Units 1 and 2 within three weeks.

,A minimum of 10 hours should be allocated to studying this learning unit.

LEARNING OUTCOMES

After completing this learning unit, you should be able to:

 provide an overview of the matters dealt with in the Income Tax Act;
 explain the fundamental principles underlying taxation;
 describe the annual process through which tax legislation is developed and
implemented;
 distinguish between the various South African tax Acts and identify the taxes
governed by each Act;
 reproduce the basic framework used to calculate normal tax;
 distinguish between direct and indirect taxes;
 identify and explain the principles used when interpreting legislation; and
 explain how court judgments, interpretation notes, practice notes and media
releases are applied when dealing with tax law.

PRESCRIBED STUDY MATERIAL FOR THIS LEARNING UNIT

There is no prescribed textbook chapter for this learning unit.

SECTIONS OF THE PRESCRIBED TEXTBOOK WHICH YOU MAY IGNORE

Not applicable to this learning unit.

CONTENTS

1.1 Background

(No prescribed text)

Governments are expected to provide services and create conditions that support the
wellbeing of people living within their countries. To finance these responsibilities,

, governments need reliable sources of revenue. Taxation is therefore one of the principal
methods used by governments to obtain income from individuals and organisations.

Apart from taxes, governments may obtain revenue through sources such as various
levies, charges for services provided to users and licence fees.

The idea of a Social Contract, sometimes referred to as a Social Compact, describes
the relationship between citizens and the state. Citizens contribute towards the
functioning of the state, including through the payment of taxes, while the state is
expected to provide public services and create conditions that contribute to social and
economic development.

One concept associated with taxation is the Laffer Curve. This theory illustrates the
relationship between tax rates and the amount of tax revenue collected by a
government. It suggests that increasing tax rates does not necessarily result in
proportionately higher tax revenue. At certain levels, reducing tax rates may potentially
encourage economic activity and result in greater overall tax revenue.

South Africa imposes a number of different taxes and tax-related charges. These
include, among others:

 income tax, which includes:
o capital gains tax;
o turnover tax; and
o dividends tax;
 donations tax;
 value-added tax (VAT);
 estate duty;
 excise duty;
 customs duty;
 transfer duty;
 air passenger tax;
 securities transfer tax;