How Does Tax Work In South Africa
Taxation may involve payments to a minimum of two different levels of government: central government through SARS or to local government.Prior to 2001 the South African tax system was “source-based”, where in income is taxed in the country where it originates. Since January 2001, the tax system was changed to “residence-based” wherein taxpayers residing in South Africa are taxed on their income irrespective of its source. Non residents are only subject to domestic taxes.
Central government revenues come primarily from income tax, value added tax (VAT) and corporation tax. Local government revenues come primarily from grants from central government funds and municipal rates. In the 2018/19 fiscal year SARS collected R 1 287.7 billion (equivalent to US$ 86.4 billion) in tax revenue, a figure R71.2 billion (or 5.8%) more than that from the previous fiscal year.
The Statistics Of The Tax In South Africa
In 2018/19 financial year, South Africa had a tax-to-GDP ratio of 26.2% that was only slightly more than the 25.9% in 2017/18. The cost of collecting tax revenue has remained somewhat constant; decreasing slightly from 0.93% of total revenue in 2016/17 to 0.89% in 2017/18,while the 2018/19 financial year showed a further improvement in the cost of revenue collection, which dropped to 0.84%.
Three of the provinces of South Africa contributed 77.8% of the total tax revenue: Gauteng (49.0%), Western Cape (15.5%), and KwaZulu-Natal (13.3%). The provinces with the smallest contributions were the Northern Cape (1.3%), followed by Free State (3.2%) and North West (3.3%).
Overview Of The Taxation In South Africa
The South African Revenue Service (SARS) is responsible for the collection of taxes within the Republic of South Africa. The mandate and vision of the South African Revenue Service, quoted from their website, is to:
- Collect all revenues due.
- Ensure optimal compliance with Tax, Customs and Excise legislation.
- Provide a customs and excise service that will facilitate legitimate trade as well as protect our economy and society.
- SARS is driven by the aspiration to contribute directly to the economic and social development of the country by collecting the revenue due to enable government to deliver on its constitutional obligations, policy and delivery priorities in pursuance of better life for all in South Africa. By encouraging tax and customs compliance, we also aspire to contribute to the building of fiscal citizenship reflected by a law abiding society.
- The anchor for SARS to deliver on this mandate is the higher purpose and values which drives and informs all SARS employees’ behaviour.“
Centenary Of Income Tax
During 1914, General Jan Smuts, in his capacity as Minister of Finance, tabled legislation in the Parliament of the Union of South Africa, introducing income tax in the country, with the Income Tax Act of 1914.Taxpayers in the Union of South Africa became liable to pay income tax, with effect from 20 July 1914. In 2014, 20 years since South Africabecame a full democracy, the University of Cape Town marked that milestone, of the introduction of income tax in South Africa, with the “INCOME TAX IN SOUTH AFRICA: THE FIRST 100 YEARS 1914 – 2014” conference and later, a publication of papers presented.
