Unit 2 – Taxation in South Africa chapter 2

THE LEGISLATIVE PROCESS

• Commences with the issuing of a green paper
o Policy doc intended for public discussion
o Sets out a Gov Department’s (National Treasury) general view of the matter
o National treasury considers public comment
o Adjust green paper if necessary
• White paper
o Adjusted green paper issued in form of white paper
o May be subject to commentary
• Draft Money Bill
o Prepared + submitted by National Treasury to Minister of Finance
o Cabinet approval obtained – reviewed by State Law Advisors (not contradict the
Con. + other laws)
o Introduced by Minister of Finance in Parliament to National Assembly + National
Council of provinces
o Published in Government Gazette for public comment
o Successfully passed through parliament – submitted for assent by President
• The Act of Parliament
o Draft Money Bill becomes Act once assented by President
o Becomes binding on the following date :
▪ Date Act published in GG
▪ Date determined in accordance with Act
▪ Date indicated in GG

TAXES IN SOUTH AFRICA

• Income Tax/normal tax
o Tax base – income generated by taxpayers during a specific year of assessment
o Ito ITA – certain deductions + allowances are allowed to be deduced
• PAYE
• Capitals Gains Tax
• Withholding Taxes
o Based on income earned by taxpayer
o Withheld at source –
▪ Places a responsibility on person that owes an amount of money to
another person to withhold an amount of tax from the amount owed to
that other person
o Tax withheld by payer paid over to SARS on behalf of recipient
o Final liability rests on person receiving the amount
o Taxes withheld on payments of renumeration by employers to employees –
▪ Duty of employer to withhold employees’ tax from any renumeration
paid to an employee + to pay it over to SARS
 ▪ Therefore an example of a withholding tax
▪ Employees tax not final tax – prepayment of normal tax + deducted from
normal tax payable in calculation of final normal tax
▪ Fourth Schedule – calculation of employees’ tax
o Taxes withheld on payments of dividends by companies to beneficial owners –
▪ Withholding tax payable on amount of any dividend paid by a resident
company/non-resident company listed on recognised stock exchange in
SA to a beneficial owner
▪ Final tax
o Taxes withheld on payments to non-residents –
▪ Withholding taxes withheld resident paying an amount to a non-resident
+ paid over to SARS by resident on behalf of non-resident
▪ Tax liability on non-resident
o Withholding tax on payments to non-resident sellers of immoveable property
(s35A ITA) –
▪ Withholding tax of 7.5%; 10% or 15% on selling price received
▪ Not final withholding tax – reduces normal tax payable by non-resident
taxpayer in the calculation of the final normal tax due by/to the taxpayer
o Withholding tax on royalties (ss49A – 49H) –
▪ Liable to 15% withholding tax on gross royalty received
o Withholding tax on interest (ss 50A – 50H) –
▪ Payable at a fixed rate of 15% of the amount of any interest received
by/accrued to any non-resident person from a source in SA
▪ Final tax
o Withholding tax on payments to foreign entertainers + sportspersons (ss 47A –
47K) –
▪ Payable at fixed rate of 15%
▪ Final tax
• Corporate Income Tax
• Donations Tax
o Tax based on gratuitous transfer of wealth
o Levied on value of all donations – other than those specifically exempt, made by
resident donor
o Calculated at –
▪ fixed rate of 20% on the cumulative value of donations not exceeding R30
million
▪ fixed rate of 25% on cumulative value of donations exceeding R30 million
o Natural person –
▪ Annual exemption of up to R100 000 of value of all donations made
during tax
o Companies –
▪ Exemption of up to R10 000 in respect of value of all casual gifts
• Turnover Tax (ss48 – 48C)
o Based on the income of the taxpayer
 o Sixth Schedule of ITA
o Elective turnover tax for micro-businesses with an annual turnover of R1
million/less
o Calculated on taxable turnover for a registered microbusiness NOT on taxable
income as with normal tax
• UIF
• Securities Transfer Tax
• Dividends Tax (ss64D – 64N)
o Based on income + considered a withholding tax
o Payable at affixed rate of 20% on the amount of any dividend paid by a resident
company/non-resident company that is listed on recognised stock exchange in
SA
o Exceptions –
▪ Headquarter companies, oil + gas companies, international shipping
companies
o ‘beneficial owner’ liable for dividends tax
▪ Company deducts 20% withholding tax on any dividend paid
▪ Final tax –
• No need to submit annual return of income if dividends only
income received by tax payer
• Skills Development
o Determined with reference to renumeration of specified employees as per Skills
Development Levies Act
o Contributions only made by employees
• Transfers duty
o Levied ito Transfer Duty Act on cost price of fixed property using a sliding scale
▪ (0%; 3%; 6%; 8%; 11% + 13%)
o Wealth tax payable by purchaser on acquisition of property
• Estate Duty
o Levied ito Estate Duty Act
o Levied on dutiable value of the estate of a deceased person at a fixed rate of –
▪ 20% of the dutiable value that does not exceed R30 Million
▪ 25% of the amount that exceeds R30 Million
o Abatement of R3,5 Million available against net value of estate
o Deceased spouse’s unused abatement carried forward to surviving spouse
o Purpose –
▪ Tax the transfer of wealth from deceased estate to the beneficiaries
o Estate liable for estate duty
• Securities transfer tax
o Imposed by Security Transfer Tax Act
▪ At rate of 0.25% of taxable amount of the transferred security
o Payable by purchaser on –
▪ Transfer of both listed + unlisted shares in companies incorporated in SA
 ▪ Transfer of shares of foreign companies listed on any recognised stock
exchange in SA
▪ Transfer of members’ interests in close corporation
o Not payable on shares
o Purpose –
▪ Tax the transfer of wealth between shareholders
• VAT
o Imposed by Value Added Tax Act
o Based on consumption
o Output tax is levied at 15% on supply of goods/services by a registered VAT
vendor
o S65 of VAT Act –
▪ All quotes/advertised prices deemed to include VAT
• Customs and exercise duties + levies
o Customs duties –
▪ Imposed on importation of goods into SA
o Exercise duties + levies –
▪ Imposed on certain luxury/non-essential goods manufactured and/or
consumed in SA
• Unemployment insurance contributions
o Determined with reference to renumeration of specific employees as per the
Unemployment Insurance Contributions Act
o Tax based on income
o Purpose –
▪ Provide relief to employees during short periods of unemployment
o Amount contributed by employee deducted from employees gross renumeration
o Contributions made by employer + employee in equal parts –
▪ 1% of gross renumeration paid by each
o Maximum monthly salary –
▪ R17 711,58

TAX PER TAX BASE

• Income
o Normal tax
o Withholding tax
o Dividends tax
o Turnover tax
o UIF
o Skills Dev Levy
• Wealth
o Estate duty
o Donations tax
o Transfer duty
o Security Transfer tax
 ▪ Charged at 0.25%
• Consumption
o VAT
o Customs + exercise

ADMINISTRATION OF TAX LEGISLATION

• SARS founded ito South African Revenue Services Act
o Sovereign organisation in charge of managing South African tax system
• S2(1) SARS Act –
o Commissioner of SARS responsible for carrying out the function of collecting
taxes + ensuring compliance with tax laws
• SARS responsible for administering tax Acts drafted + legislation by the National
Treasury
• Promotion of Administrative Justice Act (PAJA)
o Administrative action –
▪ Any decision made by SARS/any failure of SARS to make a decision that
adversely affects the rights of any person that has a direct external effect
o S3 - Determining fairness of administrative action
▪ Was adequate notice given?
▪ Was there a reasonable opportunity to make representation?
▪ Did SARS provide a clear statement of administrative action?
▪ Was adequate notice given of the right of review?
▪ Was adequate notice given of the right to request reasons?
o Provides taxpayers with the means to fair administrative action

THE BURDEN OF TAX

• VAT
o Burden – consumer
o Pay – vendor.
• Income tax
o Burden – taxpayer
o Pay – employer/taxpayer.
• Withholding tax
o Burden – taxpayer
o Pay – person withholding the tax.

SOURCES OF TAX LAW

• The Tax Acts
• Regulations
• Double Tax Agreement
• Case law
o Persuasive power but not binding.
• Not binding on taxpayer
 o Interpretation Notes
o Remaining Practice Notes
o Binding Private Rulings

INTERPRETATION OF TAX LEGISLATION

• Old conventional methods
o Literal interpretation – definition in dictionary
o Purpose interpretation – context of why this Act was issued; what is it trying to
do.
• Modern method
o Objective interpretation – an objective approach applied in Natal Joint Pension
Fund v Endumeni Municipality
▪ “… from the outset one considers the context and the language together,
with neither predominating over the other”.
• Rules of interpretation
o Contra fiscum rule – when an ambiguity exists in the interpretation of the
wording, the court should favour the taxpayer.
o Substance over form – give effect to intention of the parties rather than the
wording of an agreement or scheme.
• Tax laws need to be interpreted by SARS
• S102 Tax Administration Act –
o Burden of proof lies with taxpayer to claim an exception, non-liability, deduction,
abatement, set-off or exclusion

TAX LEGISLATION
• Regulations
o S107(1) of ITA – enables Minister of Finance to make regulations regarding
certain matters
▪ Duties of all persons engaged in administration of the Act
▪ Limits of ares within which such person are to act
▪ Nature + contents of accounts to be rendered by taxpayer in support of
returns rendered under the Act + manner in which such accounts must be
authenticated
▪ Method of valuation of annuities of fiduciary, usufructuary/other limited
interests in property
o Regulations published in GG + same power as legislation
• Double taxation agreements
o S108(2) - Once published in GG + approval from Parliament -
▪ Has the effect of law
o Conflict between ITA + DTA –
▪ DTA takes preference
• Definitions
o S 1(2) ITA - Definition in Tax Administration Act but not in ITA –
 ▪ Def in TAA apply unless context indicates otherwise
o S 1of preamble of TAA - Def in ITA but not in Tax Administration Act –
▪ Def in ITA applies unless context provides otherwise
o S4(3) TAA - Inconsistencies between TAA + ITA
▪ ITA prevails
• The Interpretation Act
o Only apply if ITA does not define term/ambiguities exist in the ITA
o Def in ITA differs from Interpretation Act –
▪ Def in ITA prevails unless context indicates otherwise
• Interpretation Notes + Binding General Rulings
o Not form part of tax legislation
▪ Only serve as guidelines
o Interpretation Notes not bind the Commissioner unless contains statement
that it is a Binding General Ruling
▪ Commissioner bound to its interpretation
o Not binding on taxpayer

JUDICIAL DECISIONS
• When will tax case be heard in a court of law?
o Taxpayer aggrieved with his assessment –
▪ May appeal if his objection has been disallowed
o TAA appeal route
▪ Tax board – Tax court – Provincial Divisions of the HC – Supreme Court of
Appeal
▪ Tax board – appeals where amount of tax not exceed R1 000 000
▪ Tax court bound by decision of Provincial Divisions of HC + Supreme
Court of Appeal
▪ Decision of tax court only binding on parties to specific case
▪ Tax court bound by decisions of Provincial Divisions of the HC
• Can income tax decisions of foreign countries create legal precedence?
o Income tax decisions of other countries must be approached with caution
o May be valuable + may influence SA courts

RULES OF INTERPRETATION
• Strict literal/textual approach
o Interpreter concentrates on literal meaning of words of provision
o To determine the purpose of the legislator
o If text is ambiguous/unclear –
▪ Literal meaning may be departed from
▪ Purposive approach followed
• Purposive approach
o Determine purpose of legislation by taking ito account all surrounding
circumstances + resources
 • Objective approach
o Considering both the context + the words of the provision with neither
dominating the other
• Contra Fiscum Rule
o Provision open to more than one interpretation –
▪ Court follow interpretation that favours taxpayer
• The substance over from rule
o Problem of interpretation arise in relation to the true meaning of an
agreement –
▪ Courts concerned with substance rather than the form of the agreement

FRAMEWORK FOR CALCULATING TAXABLE INCOME AND TAXPAYERS (NB)

INDIVIDUAL TAX RATE TABLE

• 2023 tax year (1 March 2022 – 28 February 2023)

YEAR OF ASSESMENT
• Individual
o 1 March – 28 February of the following year
▪ 1 March 2022 – 28 February 2023 (2023 is year of assessment)
• Companies
o Can choose their own 12 month year of assessment, not prescribed (usually
follows their financial year)
• Trusts
o Same as individual

THE INCIDENCE OF NORMAL TAX

• Incidence of tax refers to liability of tax
• Normal tax imposed upon any ‘person’ (s5(1) ITA)
 • S1(1) ITA –
o Person includes –
▪ Trusts, estates of deceased persons, insolvent estate + portfolio of a
collective investment scheme + any body of persons whether
incorporated/unincorporated
▪ EXCLUDES foreign partnership
• ITA –
o Deems the income of the partnership to be received by the partners individually
(s24H)
o Income Tax purposes – Partnership not taxed as individual partners are
taxpayers
o VAT purposes – partnership considered a person + liable for registration as VAT
vendor

TAX RATE STRUCTURE OF NORMAL TAX

• Varies in accordance with different persons subject to normal tax
• Same progressive rate structure used to calculate the normal tax of -
o Natural persons, decased estates, insolvent estates + special trusts
o Ranges from 18% – 45%
o Applied to taxable income + increases as the taxable income increases
• Fixed rate structure for trusts other than special trusts
o Currently 45%
• Fixed rate structure for companies
o Currently 28%
• Tax rate determined annually
o Minister of Finance announces in annual national budget
o Change in tax rates comes into effect on date announced + applies for period of
12 months
• Rebates
o Natural persons entitled to deduct primary rebate from the normal tax per tax
table calculated on taxable income
o Natural persons who are/would have been 65 years/older on last day of year
of assessment –
▪ Entitled to deduct secondary rebate from normal tax payable
o Natural persons who are/would have been 75 years/older on last day of year
of assessment –
▪ Deduct both a secondary + tertiary rebate (s6(2) ITA)
o Resident who’s taxable income includes amounts from other countries –
▪ 6quat rebate for foreign taxes deducted in determining normal tax
payable
• Tax base of normal tax for natural persons + companies
o Tax base amount on which tax is imposed
 ▪ Normal tax – tax base = taxable income of a person for a year of
assessment
o Year of assessment
▪ Ends of the last day of February except in case of companies (ends last
day of companies’ financial year)
▪ Broken period of assessment arises when taxpayer is born, dies/declared
insolvent during year of assessment
o Gross income
▪ Resident – total amount in cash/otherwise received by/accrued to/in his
favour excluding receipts + accruals of capital nature
▪ Non-resident – total amount in cash/otherwise received by/accrued to/in
his favour from a source within SA excluding receipts + accruals of a
capital nature
o Taxable income
▪ Amount remaining after deducting all the amounts allowed to be
deducted/set off from ‘income’
▪ All amounts to be included/deemed to be included in taxable income ito
ITA
o Taxable income of a company
▪ Financial statements submitted to SARS + annual return used as basis for
calculation
▪ Starts with accounting profit/loss before tax per Statement of Profit or
Loss and Other Comprehensive Income
▪ This figure adjusted with difference between accounting + tax treatment
of all the incomes + expenditures in order to calculate the taxable income
▪ S18A deduction for donations to public benefit organisation ALWAYS last
deduction
▪ Tax treatment of income item determined by ascertaining whether the
item meets all the requirements of the definition of ‘gross income’ +
whether any s10 exemption is applicable to it
▪ Tax treatment of expense item determined by ascertaining whether the
item meets all the requirements of one of the sections in the ITA allowing
an amount as a deduction