This document contains a detailed summary of TAX3702 Learning Unit 1 and includes all material in the prescribed textbooks - A student's Approach to Income Tax: Natural persons, 2021 Edition. It also includes additional activities. If you do not have access to the prescribed textbooks, this summary...
, Learning Unit 1
Introduction to taxation and calculation of net tax payable
,1.1 BACKGROUND
Background
This learning unit will:
• provide a brief overview of the workings of the income tax
system
• important as it provides the foundation for the calculation of
tax payable by individuals
• looks at the framework that is used to calculate how much
income tax an individual has to pay
It is essential for you to always bear this framework in mind,
• because the majority of a person’s income and some of his or
her expenses will be included, at some point, within this
framework.
,1.1 BACKGROUND
,1.2 Introduction to
taxation
, 1.2 INTRODUCTION TO TAXATION
Taxation in perspective
Taxes are levied to
• enable the government to provide services to the people
• Another view - taxes are contributions to the State for the ultimate benefit of all who enjoy the privileges and
protection offered by the State
, Types of taxation:
Main types of taxation:
• income tax
• capital gains tax
1.2 • value-added tax (VAT),
• excise and customs duties
INTRODUCTION and a whole range of other taxes such as
TO TAXATION
• transfer duty and
• local authority taxes
• donations tax and estate duty (which are taxes on capital),
• marketable securities tax on shares and
• local property rates
, Classification of taxes
1.2
There are a number of ways to classify taxes ranging from:
• the tax calculation method used,
INTRODUCTION • to identifying the person who is ultimately responsible for paying the tax.
TO TAXATION Taxes are classified according to a number of different factors.
• Based on what the various taxes are levied on
• The method used to calculate tax
• The person who has the responsibility of paying the tax
, Classification of taxes
Based on what the various taxes are levied on
1.2 • Income = Tax on income earned, for example income tax.
INTRODUCTION
• Consumption = Taxes on the sale or use of goods or services, for example VAT,
excise duty on domestic consumption, and customs duty and import tariffs on
foreign trade. These taxes take the form of price increases and affect the
TO TAXATION
consumers.
• Wealth = Taxes on the ownership of assets or capital gains made on the sale of
property, for example capital gains tax, estate duty, donations tax and local
authority taxes.
• Other = Taxes that are levied on specific business transactions, for example
stamp duty, transfer duty and securities transfer tax.
, Classification of taxes
The method used to calculate the tax
• Proportional tax = Tax is levied at a fixed rate on
the amount of income earned, for example income
tax on companies is levied at a fixed rate of 28% of
1.2 INTRODUCTION taxable income.
TO TAXATION
• Progressive tax = The rate that is used to calculate
the amount of tax is determined by the person’s
income. The higher a person’s income, the higher
the tax rate that is used to calculate the tax, for
example income tax levied on natural persons.
• Regressive tax = The tax rate decreases with the
increase of a person’s income. No such form of tax
exists in South Africa.
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