Summarized notes from the textbook for all 9 chapters. I personally wrote these summaries and received a distinction for the exam. Please, study these in conjunction with examples as this document only contains notes to aid the examples
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CHAPTER 1: INTRODUCTION TO THE
GEVERNMENTAL FISCAL FRAMEWORK.
1.1 Introduction:
- The Government is responsible for looking after the well-being of its citizens, but in order to do
this they need money. In order to get money, they need to levy taxes from the citizens.
- SARS levies the following taxes in South Africa:
. Income tax
. Value-added taxes (VAT)
. estate duties
. donations tax
. turnover tax (alternative regime of tax for micro-businesses)
. excise duty
. customs duty
. transfer duty
. air passenger tax
. diamond export levy
. mineral and petroleum royalties
. tax on retirement funds
. Unemployment Insurance Fund (UIF)
. Securities transfer tax
. Skills development levy (SDL)
- Purpose of the book is to equip students with the knowledge on concepts of a person who earns
an income from employment, investments or smaller pursuits, needs to know and understand the
requirements of income tax laws in SA. After finishing, must be able to complete an ITR12 income
tax return for an individual and understand the consequence’s and concepts of the different types of
income and deductions applicable to individuals
- The following concepts will be dealt with in the chapter:
. National budget
. Income tax Act
. South African Revenue Service SARS
. Tax administered by SARS
,. Alternative Dispute Resolution process
. Interpretation and practice notes
1.2 The National Budget:
- Accounting systems run over a period of a year from 1 April – 31 March, which the government
calls the fiscal year. Tax year runs from 1 March – 28/29 Feb.
- Planning is important to keep an organisation running. That is why it is important for the
government to plan out their expenditure by deciding what takes more priority; i.e. public services
such as health, social welfare, education, the police and the defence force. Then they determine
their required expenditure each year in February when the minister of finance announces the
government’s spending tax and borrowing plans for the next three years, which they call the
National Budget. It describes how the government will raise the money and how they will spend it.
The National Budget divides the money between national departments, provinces and
municipalities. It explains how much South Africa is going to spend on public services and announces
the taxes that the government will be imposing to pay for these services
Tax Revenue R billion 2017/2018 %
Personal income tax 482.1 38.1
Corporate income tax 218.7 17.3
VAT 312.8 24.7
Customs and Excise duties 96.1 7.6
Fuel Levies 70.9 5.6
Others 84.9 6.7
TOTAL R Billion 1 265.5 100
Where the money comes from
Basic education R243.0 bn
Economic affairs and agriculture R241.6 Bn
Defence, public order and safety R198.7 bn
Human settlements and municipality R195.8 bn
infrastructures
Health R187.5 bn
Social protection R180.0 bn
Other R168.4 bn
Post School education and training R77.6 bn
General Services R70.7 bn
TOTAL R1 591.2 Bn
,CONSOLDATED SPENDING 2017/2018
How they will spend the money
- The government decided it would be better to plan the income and expenditure three years in
advance instead of on a year as it would be difficult to plan for South Africa future. The three-year
planned income and expenditure is called the Medium Term Expenditure Framework (MTEF). Both
national and provincial governments must plan for their spending.
- The MTEF is used to formulate all budgets for the expenditure and revenue during the three-year
period is used to formulate all budgets. During October every year, the Minister of Finance presents
a Medium-Term Budget Speech where he presents the Medium-Term Policy Statement. The MTEF
budget process design matches the overall resource envelope, estimated through a top-down
macro-economic and fiscal policy process, with the bottom-up estimation of the current and
medium-term cost of the existing departmental plans and expenditure programs.
- The government develops budgets with the political priorities clearly spelt out in the Medium Term
Strategic Framework, the Program of Action, the Accelerated Shared Growth Initiative (Asgi-SA), the
National Development Plan (NDP), and the Joint Initiative on Priority Skills Acquisition (JIPSA)
- Ob Budget day (Usually third week in feb) the Minister of Finance presents the governments three-
year spending plans as well as the estimated taxes for the year. The Minister also presents the
Division of Revenue Bill to Parliament, setting out how the spending will be divided between the
national, provincial and local governments.
- The division of revenue and budget process allows the government to:
. revise its policies, macro-economic framework and resources.
. allocate available resources between the three spheres of government in line with its policy
priorities.
. involve role-players who proves the technical advice when faces with trade-offs between spending
priorities.
. Obtain the required authority from Parliament and provincial legislatures to divide revenue and
spend it in accordance with the relative budgets.
- Just like in any business, if the government spends more than it earns (referred to as the budget
deficit) they must borrow extra money required and pay interest on the money, therefore its
advisable that they don’t spend too much.
- The budget Cycle can be divided into 4 stages
1 – Drafting the budget
, 2 – legislating the budget
3 – Carrying out the budget
4 – Audit
1.3 Drafting the budget:
- The budget process is about deciding and agreeing to the best allocation of scarce resources to
fund the governments many social, economic and political goals. This is achieved by means of two
parallel linked processes; a policy prioritisation process which describes what needs to be done, and
a budget review process that describes the available resources.
- Budget process begins in april a year before the fiscal year for which the government is planning
(eg. The budget process for 2017/2018 fiscal year started in April 2016). The process doesn’t end in
April 2018, Parliament only approves the budget legislation after the financial year has started.
- Stage one of the budget cycle is split into sub-divided stages which there are 8 of them:
. The fiscal framework and policy prioritisation:
Minister of Finance develops Medium-term framework between January and March.
Process of policy prioritisation begins 18 months before start of the financial year, with the
preparation of the Medium-Term Strategic Framework. The MTSF forms a basis for the
President’s State of the Nation address in the month of February each year.
In this speech, the President spells out the governments priorities for the short and medium
terms.
Short term should refer to the objectives that the government has already allocated funds
for in the upcoming budget.
Medium term is one that will inform the budget drafting process for the years budget.
Working within the MTSF the Ministers Committee on the Budget (MinComBud) develops a
set of medium term policy priorities for the national government, which guides the national
departments when preparing the first draft of their strategic plans for the new budget cycle.
Similarly, in the provinces, the executive committees (or subcommittee) set provincial
priorities to guide the provincial departments strategic planning.
. Stage 2: National and provincial inputs:
The review of the medium term priorities by the MinComBud and Budget council takes place
in May, June and July – these priorities are refined each time and the feasibility assessed.
In addition, extensive technical consultations are held between the national and provincial
treasuries, and between national and provincial departments – particularly in case of
concurrent functions.
These meeting are refferd to as 10x10 or 4x4 due to the number of national and provincial
department participants. These technical meetings are often mirrored by HeadCom and
MinMECs for the different functions where policy decisions are made on different priorities
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