Taking a sideways look at tax: Gail Gibson.

Pierre De Vos, a South African constitutional law scholar, started a turmoil of comments when he wrote his article on inheritance tax[1]. Redistribution of wealth via taxes seems to be an oxymoron in South Africa when the corruption is so high. Taxpayers more willingly pay tax when they easily see the link between their tax burden and the amount of public goods and services provided to them. In many countries taxation is an attempt to solve the problem to maximize a social welfare function subject to a number of constraints (economic, political, informational etc.).

In a nutshell taxes are supposed to be used to redistribute wealth in a country, so all residents have a better life. South Africa has a high tax rate on a small tax base. This fact is leading to people leaving the country. The perception is those paying tax often have no alternative but to also have private security, transport, health and education.  

An aspect many people in South Africa do not understand is that wealth taxes have been around for many years. Income, capital gains and value added tax are all taxes we know and pay, but do you know about the other taxes in South Africa?

We call these taxes indirect taxes.

Indirect taxes include:

  • estate duty (20 percent)
  • donations tax (20 percent)
  • securities transfer tax (0.25 percent)
  • transfer duty.
  • customs and excise duties
  • fuel and road accident fund levies
  • environmental tax
  • skills development and unemployment insurance levies

Personal indirect taxes

Why do we have wealth taxes?

Wealth tax is a tax levied on the value of held assets. It is the tax that is over and above taxing income that a person receives. A wealth tax is applicable to a variety of asset types including cash, bank deposits, shares, fixed assets, personal cars, assessed value of real property, pension plans, money funds, owner-occupied housing, and trusts. Our tax collection agency has a variety of taxes which they use to remove wealth from high worth individuals

Estate Duty

Estate Duty is charged, levied and collected in respect of the estate of every person who dies on or after 1 April 1955 with an estate worth more than R3. 5 million. Estate Duty is charged at the rate of 20% on the first R30 million of an estate. For an estate above R30 million this duty will increase to 25%.

Donations tax

Donations tax applies to any individual, company or trust that is a resident as defined in section 1 of the Income Tax Act, 1962.

The person making the donation (donor) is liable for the tax but if the donor fails to pay the tax within the prescribed period the donor and donee are jointly and severally liable for the tax (section 59).The payment of the tax must be done within three months of making the donation.

Donations tax is tax payable at a flat rate of 20% on the value of property disposed of by donation. There are some exempt donations which include amongst others donations between spouses and donations to approved public benefit organisations.

Non-residents are not liable for donations tax

Securities transfer tax

This tax applies to the purchase and transfers of listed and unlisted securities. Securities transfer tax must be paid by the 14th day of the month following the month during which transfers of listed securities occurred.

Transfer duty

Transfer Duty is a tax that is levied on the value of any property that is acquired above R 1 million. Property includes, amongst other things, land and fixtures, real rights in land, rights to minerals, a share or interest in a residential property company or a share in a share-block company.

Fuel and road accident fund levies

The tax component contained in the pump price of 93 octane petrol is nearly 41% and for diesel nearly 42%,. This fact translates that for every litre of petrol that you put into your car, around R5.59 goes to taxation, of which R3.61 forms part of the general fuel levy and R1.98 is claimed by the road accident fund.

Other indirect taxes you are paying

Customs duties

Customs duties are imposed by the Customs and Excise Act 91 of 1964. They are levied on imported goods with the aim of raising revenue and protecting the local market.

Three kinds of duties are levied on imported goods:

  • Customs duties (including additional ad valorem duties on certain luxury or non-essential items);
  • Anti-dumping and countervailing duties
  • VAT (which is also collected on goods imported and cleared for home consumption

Excise duties

Excise duties and levies are imposed mostly on high-volume daily consumable products (e.g. petroleum and alcohol and tobacco products) as well as certain non-essential or luxury items (e.g. electronic equipment and cosmetics).

The primary function of these duties and levies is to ensure a constant stream of revenue for the State, with a secondary function of discouraging consumption of certain harmful products; i.e. harmful to human health or to the environment.

 The revenue generated by these duties and levies amount to approximately ten per cent of the total revenue received by SARS[2]

Environmental taxes

South Africa has the 18th highest environmentally related tax revenue among 34 OECD and 5 partner economies. [3] These taxes include vehicle emissions levies and a tyre levy (collected by SARS from 2016/17).

At work- indirect taxes paid via your employment

Skills development levies

Skills development is a monthly levy imposed to promote learning and development in South Africa and is driven by an employer’s salary bill. The idea is to educate thaose that were disadvantaged by history, circumstances and other factors to level the earning playing field with post school education. It presently is 1% of the total amount paid in salaries to employees (including overtime payments, leave pay, bonuses, commissions and lump sum payments). The monies are distributed by way of using the various Setas.

Unemployment insurance Fund

The Unemployment Insurance Fund (UIF) gives short-term relief to workers when they become unemployed or are unable to work because of maternity, adoption leave, or illness. It also provides relief to the dependants of a deceased contributor. The maximum earnings ceiling is R14 872 per month or R178 464 annually.

Subject to certain exemptions employees, as well as their employers, are liable for contributions to the UIF. The contribution of 2% comprises 1% contributed by the employee and 1% contributed by the employer.

I hope this article has given insight into the many taxes a South African will pay over and above the income tax taken off the salary on a monthly basis.

[1] Opinionista • Pierre De Vos • 11 June 2020

Privilege and Inheritance: Time to disrupt intergenerational transfers of wealth

[2] https://www.sars.gov.za/ClientSegments/Customs-Excise/Excise/Pages/default.aspx: 30/06/2020

[3] https://www.oecd.org/tax/tax-policy/environmental-tax-profile-south-africa.pdf 30/06/2020