TAX

Tax administration

National Treasury is responsible for advising the Minister of Finance on tax policy issues.As part of this role, National Treasury must design tax instruments that can optimally fulfil a revenue-raising function.These tax instruments must be aligned to the goals of government’s economic and social policy.

These instruments are then administered by SARS. A single, modern framework for the common administrative provisions of various tax Acts administered by SARS, excluding Customs, was established by the Tax Administration Act of 2011, which commenced on I October 20 I 2.

The Act simplifies and provides greater coherence in South African tax administration law. It eliminates duplication, removes redundant requirements, and aligns disparate requirements that previously existed in different tax Acts administered by SARS. The Act provides for common procedures across the various tax Acts, and strives for an appropriate balance between the rights and obligations of SARS and the rights and obligations of taxpayers in a transparent relationship.

The Office of the Tax Ombud is intended to provide taxpayers with an impartial and low-cost mechanism to address service, procedural or administrative difficulties that taxpayers have not been able to resolve through SARS’s complaints management channels.

South African tax system

South Africa has a residence-based income tax system. Residents are, subject to certain exclusions, taxed on their worldwide income, irrespective of where their income was earned. Non-residents are taxed on their income from a South African source, subject to relief under Double Taxation Agreements. Foreign taxes are credited against South African tax payable on foreign income.

Personal Income Tax

PIT is one of government’s main sources of income. Income tax is levied on residents’ worldwide income, with appropriate relief to avoid double taxation. Non-residents are taxed on their income from a South African source.Tax is levied on taxable income that, in essence, consists of gross income less exemptions and allowable deductions. (Taxable capital gains also form part of taxable income). Individuals generally receive most of their income as salary/ wages, pension/retirement payments and investment income (interest and dividends). Some individuals may also have business income which is taxable as personal income (for example, sole proprietors and partners).

Corporate Income Tax (CIT)

CIT is a tax imposed on companies resident in South Africa, which are incorporated under the laws of, or which are effectively managed in, the country, and which derive income from within or outside the country. Non-resident companies which operate through a branch or which have a permanent establishment within South Africa are subject to tax on all income from a source within the country.

Dividends Tax (DT)

DT is a tax on shareholders (beneficial owners) when dividends are paid to them, and, under normal circumstances, is withheld from their dividend payment by a withholding agent (either the company paying the dividend or, where a regulated intermediary is involved, by the latter). A dividend is in essence any payment by a company to a shareholder in respect of a share held in that company, excluding the return of contributed tax capital (i.e. consideration received by a company for the issue of shares). It is triggered by the payment of a dividend by any South African tax resident company or foreign company whose shares are listed on a South African Exchange.

Air Passenger Tax (APT)

In 2000 the Minister of Finance announced that an APT was to be instituted on chargeable passengers on a chargeable aircraft departing from an airport in South Africa to a destination outside the country. This is also applicable to charter companies. The tax is not applicable to domestic flights. It is only applicable to chargeable passengers leaving on an international flight. Operators (airline), registered agents (those acting on behalf of an operator) or charter companies will be liable for the payment of the APT to SARS monthly after reconciliation of the passenger manifests. Non carrying passenger airlines (cargo) are required to register for APT purposes but are not liable for APT payments.

Capital Gains Tax (CGT)

CGT is not a separate tax but forms part of income tax. A capital gain arises when you dispose of an asset on or after I October 200 I for proceeds that exceed its base cost.

The relevant legislation is contained in the Eighth Schedule to the Income Tax of 1962. Capital gains are taxed at a lower effective tax rate than ordinary income. Pre- I October 200 I CGT capital gains and losses are not considered. Not all assets attract CGT and certain capital gains and losses are disregarded.A withholding tax applies to non-resident sellers of immovable property (Section 35A).

Diamond Export Levy

The Diamond Export Levy on unpolished diamonds exported from South Africa was introduced on I November 2008. SARS is mandated to administer and collect this levy in terms of the Diamond Export Levy Act of 2007. All producers, dealers, beneficiators and holders of permits must pay this levy when exporting such diamonds. The aim of the Diamond Export Levy is, among others, to promote the development of the local economy by encouraging the local diamond industry to process diamonds locally, develop skills and create employment.

Skills Development Levy (SDL)

The SDL is a levy imposed to encourage learning and development in South Africa and is determined by an employer’s salary bill. The funds are to be used to develop and improve skills of employees. Employers paying annual remuneration of less than R500 000 are exempt from the payment of this levy.The following employers are exempt from paying SDL:

• Any public service employer in the national or provincial sphere of government. (These employers must budget for an amount equal to the levies due for training and education of their employees).
• Any national or provincial public entity, if 80% or more of its expenditure is paid directly or indirectly from funds voted by Parliament. (These employers must budget for an amount equal to the due for training and education of their employees).
• Any PBO, exempt from paying Income Tax in terms of Section 10(1) (cN) of the Income Tax Act of 1962, which only carries on certain educational, welfare, humanitarian, healthcare, religion, belief or philosophy public benefit activities or only provides funds to these PBOs and to whom a letter of exemption has been issued by the Tax Exemption Unit.
• Any municipality to which a certificate of exemption is issued by the Minister of Higher Education and Training.
• Any employer whose total remuneration subject to SDL (leviable amount) paid/due to all its employees over the next 12-month period won’t exceed R500 000. If this is the reason for exemption, these types of employers are not required to register to pay SDL.