Summary TAX2601 LU 7 Capital gains tax (CGT)

Learning unit 1 – Introduction to the South African tax system




1.1 Background:
Duty of government to provide services to its citizens – need income to provide
services & consequently government levy taxes to receive income


SA government made provision for following taxes, among other things:
 Income tax – which includes:
o Capital gains tax
o Turnover tax
o Dividends tax
 Value-added tax {VAT}
 Estate duty
 Excise duty
 Customs duty
 Transfer duty
 Air passenger tax
 Securities transfer tax
 Unemployment insurance fund (UIF)
 Skills development levy (SDL)


1.2 The Income Tax Act:
We will be looking at the laws and provisions that are contained in the Income
Tax Act and the Tax Administration Act.
 Each year, the government follows a certain process to update these Acts
and selected provisions are amended.
 The Income Tax Act was originally legislated in 1962 and it is amended
annually.
This section of the study guide will give you some background on the way in
which the Income Tax Act evolves each year.




SA GOVERNMENT FISCAL YEAR
= (like an accounting year) which runs from 1 April to 31 March each year

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,BUDGET SPEECH
= In Feb each year, usually 3rd week – Minister of Finance announces
government’s spending, tax & borrowing plans for following 3 years = “budget
speech”
 Budget speech based on National Budget


NATIONAL BUDGET
= plan showing how much money will be spent on all different services that
government must provide & makes provision for taxes that will be imposed to
pay for these services (part of National Budget entail amended tax legislation)


BUDGET PROCESS
1. The budget process starts with a three- to four-month process of review in
both the national and the provincial legislatures.
2. After debate by parliament and referral to the standing committee on
finance for comment,
3. the draft taxation bills are presented to the State President for signature
and promulgated as an Act of parliament (it becomes law) when the Act is
published in the Government Gazette.
4. When the bill becomes an Act (or law), the legislation that was introduced
in the budget speech becomes part of the original Income Tax Act.


AMENDMENTS ACTS
 Income Tax Act effected every year by number of amendment acts
 Before legislation passed by parliament – it is called a “bill”
 A bill = always accompanied by an explanatory memorandum – which
explain the reasons for amendments it contains
 Government issues 2 amendment Acts per fiscal year – the “Taxation Laws
Amendment Act” & the “Taxations Laws Second Amendment Act”
 usually promulgated between July & September


TAXATION LAW AMENDMENTS BILL & TAXATIONS LAW SECOND AMENDMEND
BILL
 Become Act of Parliament = once signed by President
 Must be published promptly &
 take effect at dates at which they published or – for specific provision, at a
date specified in Act
DATE OF PROMULGATION (of an amendment act)
= means the date at which it is published in the Government Gazette


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, INCOME TAX ACT STRUCTURE
 Divided into chapters & parts
 Each part has sections & each section paragraphs & sub-paragraphs
 Attached to our Income Tax Act are 11 schedules
 Administered by the Commissioner of the South African Revenue
Services (SARS)


1.3 SARS
SARS is headed up by a commissioner.
 The Income Tax Act at times refers to the commissioner and gives him
powers and duties.
 These powers and duties are delegated by the commissioner to employees
of SARS.
 The commissioner reports to a board of directors, which, in turn, is
accountable to the Minister of Finance.


SARS WAS ESTABLISHED IN TERMS OF
= the South African Revenue Service Act as an autonomous and independent
section of the government.
 The South African tax regime is set by National Treasury and administered
by the Commissioner of SARS (CSARS).
 The CSARS used to be called the Commissioner of Inland Revenue (CIR)
and before that, the Secretary for Inland Revenue (SIR).
 You will see these names once you start referring to case law.




1.4 Types of taxation:
Governments of different countries have chosen different ways of levying
taxation.
 Each country or government will have different types of taxation and they
could have a different basis for taxation.


In South Africa,
= taxpayers are taxed on the residence basis of taxation.
 This means that persons, who are residents, are subject to taxation in
terms of the Income Tax Act in respect of all the income they earn,
anywhere in the world.




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