Study:
Silke paras:
• Theme 1: 1.1; 1.2; 1.3; 1.4 (including sub-paragraphs)
• Theme 2: 2.2.3 (including sub-paragraphs); 2.4.1; 2.4.2; 2.4.3; 2.5.3
• NB: Framework in table 2.2
• Read: 2.5.1; 2.5.2
Note: The comprehensive example in para 2.6 will confuse you now. You will
understand it once you have completed Themes 1-6
Objectives:
After having studied this theme you should understand & be able to explain:
• the need for taxation
• the nature of taxation
• the different types & categories of taxes
• the difference between taxes & user charges
• the concept “connecting factor” & be able to describe various connecting
factors
• the following concepts: tax base, tax incidence, tax burden, taxpayer, taxable
value, tax rate & tax law
• the distinction between direct & indirect taxes
• appreciate the extensive nature of the South African tax system
• discuss the sources of South African tax law
• appreciate the importance of the Constitution & the rules pertaining to the
interpretation of statutes in the sphere of taxation
• explain the in dubio contra fiscum rule
• appreciate that tax law can only be viewed & applied within its constitutional
& common-law framework
Page 1 of 15
, Contents:
1. Overview: ............................................................................................................................. 3
2. Tax base: .............................................................................................................................. 3
3. Tax rate structure & incidence:........................................................................................... 4
4. Principles of taxation: ......................................................................................................... 8
4.1. The equity Principle: .................................................................................................... 9
4.2. The Certainty Principle: ............................................................................................. 11
4.3. The Convenience Principle: ....................................................................................... 11
4.4. The Economic Efficiency Principle: ............................................................................ 12
4.5. The Administrative Efficiency Principle: ..................................................................... 13
4.6. The Flexibility Principle: ............................................................................................. 13
4.7. The Simplicity Principle ............................................................................................. 14
Page 2 of 15
, 1. Overview:
• There is a relationship btwn a government & its citizens that is referred to as the social compact.
o In this social compact, a citizen has the responsibility to pay taxes, & a government has the
responsibility to deliver certain goods & services in return.
• DEF of Taxes:
o Compulsory payments that are imposed on citizens to raise revenue for government in
order to fund expenditure (such as education, health, housing) for the benefit of society.
• In deciding on the appropriate level of taxation to be imposed, the government of a country
formulates a tax policy.
o Policies are those courses of action taken by governments to ensure that their objectives
are achieved.
• To formulate an appropriate tax policy, governments have to make decisions about the tax base,
the tax rate structure & the incidence of the tax liability.
o All of the aforementioned should be guided by the general principles of taxation.
2. Tax base:
• The tax base is the amount on which tax is imposed.
o This amount is usually determine by legislative provisions that provide guidance on what
should be included & excluded from the tax base.
o The amounts included in the tax base do not necessarily correlate with our normal
understanding of economic income.
For example: when you receive interest income of R30 000, your bank balance & your economic income increase
by R30 000. If tax legislation provides that R20 000 of your annual interest income is tax free, then only R10 000
(R30 000 – R20 000) of the interest income will be included in the tax base that is subject to tax. Evidently, economic
income will not always be equal to the amount subjected to tax.
• While a specific tax base will be defined within each piece of legisl, a tax base is broadly based on
income, wealth or consumption:
o An income tax base includes income earned or profits generated by taxpayers during a year
of assessment.
o A wealth tax base consists of the value of assets or property of a taxpayer.
o A consumption tax base encompasses the amount spent by taxpayers on goods & services.
• After determining the tax base, a % or unit is applied to this amount to determine the tax liability.
Page 3 of 15
, 3. Tax rate structure & incidence:
• The tax rate is sometimes expressed as a %. Example: where tax is imposed at 15% on the value of
a transaction.
o Other times it can be expressed as an amount per unit, for e.g. where excise taxes are
imposed on each packet of cigarettes consumed in a country.
• The following terminology is NB in understanding tax rates:
o Marginal tax rate:
▪ This is the tax rate that will apply if the tax base increases by R1.
o Statutory tax rate:
▪ This is the tax rate that is imposed on the tax base as determined in accordance
with relevant legisl.
o Average tax rate:
▪ The average tax rate represents the rate at which tax is paid with reference to the
total tax base of a relevant taxpayer.
• This is determined by dividing the total tax liability by the total tax base
(e.g. Total tax liability/ Total tax base).
• The tax liability & the total tax base are determined having regard to
relevant legislative provisions.
o Effective tax rate:
▪ The effective tax rate can be determined by dividing the tax liability by the total
profit or income.
• The effective tax rate is often used as a measure to compare the effective
tax liabilities of different taxpayers.
Page 4 of 15
Silke paras:
• Theme 1: 1.1; 1.2; 1.3; 1.4 (including sub-paragraphs)
• Theme 2: 2.2.3 (including sub-paragraphs); 2.4.1; 2.4.2; 2.4.3; 2.5.3
• NB: Framework in table 2.2
• Read: 2.5.1; 2.5.2
Note: The comprehensive example in para 2.6 will confuse you now. You will
understand it once you have completed Themes 1-6
Objectives:
After having studied this theme you should understand & be able to explain:
• the need for taxation
• the nature of taxation
• the different types & categories of taxes
• the difference between taxes & user charges
• the concept “connecting factor” & be able to describe various connecting
factors
• the following concepts: tax base, tax incidence, tax burden, taxpayer, taxable
value, tax rate & tax law
• the distinction between direct & indirect taxes
• appreciate the extensive nature of the South African tax system
• discuss the sources of South African tax law
• appreciate the importance of the Constitution & the rules pertaining to the
interpretation of statutes in the sphere of taxation
• explain the in dubio contra fiscum rule
• appreciate that tax law can only be viewed & applied within its constitutional
& common-law framework
Page 1 of 15
, Contents:
1. Overview: ............................................................................................................................. 3
2. Tax base: .............................................................................................................................. 3
3. Tax rate structure & incidence:........................................................................................... 4
4. Principles of taxation: ......................................................................................................... 8
4.1. The equity Principle: .................................................................................................... 9
4.2. The Certainty Principle: ............................................................................................. 11
4.3. The Convenience Principle: ....................................................................................... 11
4.4. The Economic Efficiency Principle: ............................................................................ 12
4.5. The Administrative Efficiency Principle: ..................................................................... 13
4.6. The Flexibility Principle: ............................................................................................. 13
4.7. The Simplicity Principle ............................................................................................. 14
Page 2 of 15
, 1. Overview:
• There is a relationship btwn a government & its citizens that is referred to as the social compact.
o In this social compact, a citizen has the responsibility to pay taxes, & a government has the
responsibility to deliver certain goods & services in return.
• DEF of Taxes:
o Compulsory payments that are imposed on citizens to raise revenue for government in
order to fund expenditure (such as education, health, housing) for the benefit of society.
• In deciding on the appropriate level of taxation to be imposed, the government of a country
formulates a tax policy.
o Policies are those courses of action taken by governments to ensure that their objectives
are achieved.
• To formulate an appropriate tax policy, governments have to make decisions about the tax base,
the tax rate structure & the incidence of the tax liability.
o All of the aforementioned should be guided by the general principles of taxation.
2. Tax base:
• The tax base is the amount on which tax is imposed.
o This amount is usually determine by legislative provisions that provide guidance on what
should be included & excluded from the tax base.
o The amounts included in the tax base do not necessarily correlate with our normal
understanding of economic income.
For example: when you receive interest income of R30 000, your bank balance & your economic income increase
by R30 000. If tax legislation provides that R20 000 of your annual interest income is tax free, then only R10 000
(R30 000 – R20 000) of the interest income will be included in the tax base that is subject to tax. Evidently, economic
income will not always be equal to the amount subjected to tax.
• While a specific tax base will be defined within each piece of legisl, a tax base is broadly based on
income, wealth or consumption:
o An income tax base includes income earned or profits generated by taxpayers during a year
of assessment.
o A wealth tax base consists of the value of assets or property of a taxpayer.
o A consumption tax base encompasses the amount spent by taxpayers on goods & services.
• After determining the tax base, a % or unit is applied to this amount to determine the tax liability.
Page 3 of 15
, 3. Tax rate structure & incidence:
• The tax rate is sometimes expressed as a %. Example: where tax is imposed at 15% on the value of
a transaction.
o Other times it can be expressed as an amount per unit, for e.g. where excise taxes are
imposed on each packet of cigarettes consumed in a country.
• The following terminology is NB in understanding tax rates:
o Marginal tax rate:
▪ This is the tax rate that will apply if the tax base increases by R1.
o Statutory tax rate:
▪ This is the tax rate that is imposed on the tax base as determined in accordance
with relevant legisl.
o Average tax rate:
▪ The average tax rate represents the rate at which tax is paid with reference to the
total tax base of a relevant taxpayer.
• This is determined by dividing the total tax liability by the total tax base
(e.g. Total tax liability/ Total tax base).
• The tax liability & the total tax base are determined having regard to
relevant legislative provisions.
o Effective tax rate:
▪ The effective tax rate can be determined by dividing the tax liability by the total
profit or income.
• The effective tax rate is often used as a measure to compare the effective
tax liabilities of different taxpayers.
Page 4 of 15
