All South Africans have this in common. It is the government’s main source of income and the true driving force of the economy.
“The hardest thing in the world to understand is the income tax.” – Albert Einstein
South African income tax is governed by the Income Tax Act and collected by the South African Revenue Service (SARS). All residents living and working in South Africa are typically liable to pay income tax in South Africa, although how much you must pay depends on your tax residency status and earning amount.
South Africa operates on a residency-based taxation system, meaning that residents according to the law pay tax on their world-wide incomes. Your question to me will now be who is considered to be a South-African resident? Residents are those with citizenship or residents permits, but you will be considered being a resident if you have been living in South-Africa for more than 91 days in total in each of the last 5 years, or at least 915 days in total across those five years.
What earnings are subject to SARS income tax?
The following type of earnings (only a few examples) will be subjected to income tax:
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Employment income – including salaries, bonuses, overtime and fringe benefits
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Directors fees
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Rental income
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Investment income such as interest or dividends
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Annuities
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Royalties
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Pension income
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Capital gains (when you sell an asset or shares)
Is there any relief or exceptions for income tax payers?
There are certain forms of income that are exempt from taxable income in South Africa, those are set out in section 10 of the Income Tax Act.
Included in the list below are some of the most familiar deductions for a typical South-African resident.
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Exemption on interest payments up to R23 800 and R34 500 for those aged 65 and over.
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Tax relief claims against work-related travel and vehicle allowance.
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Tax-relief on retirement lump sum benefits up to a total of R500,000 across a lifetime
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Medical tax credit for persons who belong to a medical aid scheme of R310 per month (plus R310 per month for the first dependent and R209 per month for each additional dependent).
After an individual has included all their earnings minus their deductions they will have an amount which is called your taxable income. To calculate an individual’s final amount payable to SARS one will apply the income tax brackets for South-Africa. The income tax brackets in South-Africa are progressive like elsewhere, meaning that you will pay higher income tax the more you earn.
The income tax brackets for South-Africa 2018 is as follows:
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Up to R189,880: 18% of taxable income
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R189,881–296,540: 26% (R34,178 plus 26% of taxable income above R189,880)
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R296,541–410,460: 31% (R61,910 plus 31% of taxable income above R296,540)
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R410,461–555,600: 36% (R97,225 plus 36% of taxable income above R410,460)
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R555,601–708,310: 39% (R149,475 plus 39% of taxable income above R555,600)
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R708,311+: 41% (R209,032 plus 41% of taxable income above R708,310)
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R1,500,001m +: 45% (R533,625 plus 45% of taxable income above R1,500,000)
So how do we compare to the world
SA income taxpayers have gone from the 18th-highest personal income tax burden to the 14th- highest in the world. The trend is up and is likely to be that for some time to come. The tax burden on individuals increases as inflation lifts salaries, but tax brackets increase at half the inflation rate. South Africa has one of the highest overall tax-to GDP ratios in the world today. When we look at the percentage for different types of taxes in South-Africa alone we can also make the conclusion that income tax contributes by far the most (35.9% see table) to the overall collection of taxes.
What should I do when I am a Taxpayer?
SARS request that all employers should file and submit IRP5s for their employees. You can inquire and receive your IRP5 from your employer after 31 May of each year of assessment where after you will complete your income tax return accordingly.
To conclude, personal income tax is the single largest expense in the budgets of many employees and is the primary source of government income and the significance of this is real and everyone should at least have an idea of where their hard-earned money is going to.
Like the famous Benjamin Franklin quote goes without saying:
“Nothing in this world is certain except for death and paying taxes”
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