Government Income
1. Income Tax Tis type of taxation includes tax on personal income, tax on corporate income, tax on wage totals (payroll tax) and finally tax on turnover. Tis type of tax should not be seen as income from taxation but rather, tax on income – i.e. tax on money earned by individuals or companies.
Personal Income Tax Tis type of tax is responsible for the bulk of revenue for the state: even more than VAT (see table on next page). In order to calculate the personal taxability one must determine the tax base – this means determining which income should be taxable – this is done by allowing exemption and deductions, such as travelling expenses, for example. Once the tax base has been determined, the tax rate (how much) may be determined. Taxpayers are divided into income brackets (see table below). A fixed amount of money is taxed, added to this is a marginal rate of tax which differs for each bracket:
Personal Income Tax Distribution
Tax Brackets
Deductions – the following expenses are deducted from the gross salary earned before the tax is applied: personal medical aid expenses to the value of R720 per month (2011/12); tool allowance; expenditure incurred because of physical ability; donations to organisations; pension fund contributions; travelling and entertainment expenses as part of the procurement costs of income, among others. Why does the SARS allow these deductions? Te answer is because it believes the cost of earning an income does not contribute to the wealth of a taxpayer. Te general attitude towards taxation is that tax should apply to net income – the intention is always to tax wealth itself and not money used in order to acquire wealth.
Exemptions – certain individuals and organisations are exempt from taxation. Te following are exempt: interest earned by South African residents (up to a maximum amount); dividends earned from South African companies; foreign interest and dividends (up to a certain amount); scholarships and bursaries; lump sums on termination of employment; government and provincial receipts and accruals; public benefit organisations; receipts and accruals from pension, benefit, provident and retirement annuity funds; levies received by a body corporate; compensation in terms of the Workmen’s Compensation Act; the capital portion of voluntary purchased annuities. Exactly who becomes eligible for exemption depends on the government of the day; the rules might change from year to year also.
Rebates – even before deductions are made a rebate is allowed. Everyone below the age of 65 is allowed to subtract an amount of R10 755 from the tax amount; everyone over 65 years of age, is allowed to subtract an additional R6012 and everyone over the age of 75 is allowed to deduct a further R2000 from the taxed amount (Budget, March 2011).
TAXABLE NET INCOME = Gross income – exemptions/deductions/rebates 85
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