We talk about tax
Much as we hate them, we cannot escape taxes. For people who earn one salary, income tax is a simple matter. However, many of us have a side hustle or even a fully functioning business to boost our income, so understanding a bit more about tax is useful.
In its most basic form, a tax is a compulsory financial charge or some other type of levy that a
governmental organisation demands of the citizens of a country. Income tax is the big one we all know about, but there is also VAT (or value added tax), UIF, capital gains tax (which you pay on the profit you make when you sell an asset, like your house), the fuel levy and many others. In fact, the SARS website lists 19 different taxes!
Why are taxes necessary?
Taxes are the government’s main source of income. The government uses this money for goods and services that benefit all citizens, such as hospitals, schools, roads and public safety. Our taxes contribute to the development of our communities and the country. (Yes, governments sometimes misuse public funds; that is why we as citizens must hold government employees accountable.)
How do taxes work?
South Africa has a progressive tax system, which means that those who earn more, pay more.
Although all of us pay the same VAT (15%) when we buy goods and services, we don’t all pay the same income tax.
In South Africa, you are liable to pay income tax if you earn more than R95 750 and you are younger than 65 years. If you are between 65 and 75 years old, the tax threshold (the amount above which income tax becomes payable) is R148 217. For taxpayers aged 75 years and older, this threshold is R165 689.
Different tax rates also apply. For instance, you only pay 18% if your gross income is below R237 100; if your annual income is between R370 501 and R512 800, you pay a flat rate of R77 362 + 31% of your taxable income above R370 500.
It can get complicated, but the intention is to keep things fair and balanced.
What is taxable income?
Taxable income is the portion of your income that is subject to taxes. Some things increase that income, such as money you get from renting out a property, inheriting money or assets, or getting gifts and donations above a certain amount. Fortunately, there are also things that reduce your taxable income (and therefore the amount of tax you pay). Examples are contributions to pension funds and medical aids and donations to registered charities.
How to save on taxes
It is our duty to pay the taxes we owe, but it is also our right to not pay more than our fair share.
You can save on taxes by:
- Claiming all the deductions you are allowed to. Make sure you’re aware of all the deductions available to you and keep the necessary documentation to support your claims.
- Understanding tax incentives. Not all tax incentives apply to every taxpayer, and if you claim incorrectly, you could end up paying penalties. Ensure you understand the criteria for each incentive before claiming it.
- Being diligent about meeting tax deadlines and ensuring your tax return is accurate and complete. Late or incomplete tax returns almost always result in penalties and interest charges. Where you can learn more
- Attend a SARS workshop and get help with your personal tax issues from a SARS office or mobile tax unit.
- SARS’s website has comprehensive information on all tax matters. Other websites, like SA Tax Guide, offer free resources such as FAQs, and case studies.
- Tax guides and publications, such as the South African Income Tax Guide that is updated every year with a summary of that year’s income tax laws.
- Tax experts, such as accountants or tax advisors, can help you with deductions and
compliance.
