10.

WEEK 2 COURSE SCHEDULE: TOPIC 1 INTRODUCTION TO

TAX (8 MARCH 2021)

Study Pack 1 consists of the following documentation:

The course schedule (this document)

Learning material The slides
Additional articles for reading
Suggested solutions to HomeTax questions

Download Study Pack 1 and work through the course

schedule and the slides. Make sure that you have your
SANP next to you.
Learning activities Draft notes / summaries so that YOU understand the
content.
After you’ve completed the HomeTax, add any
additional knowledge you’ve gained to your own notes.

Bb Quiz 1 (20 marks)

o Opens 08:00 on Monday, 29 March 2021; Closes at
Assessment activities 15:00 on Thursday, 1 April 2021)
PwC Assignment Required 1
o Monday, 10 May 2021 (12:00 / noon)

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 10.1 TOPIC OVERVIEW

The purpose of this topic is to introduce the student to the concept of taxation in South
Africa, including how tax is defined and a brief background on tax in South Africa. It
explores the different types of taxes in South Africa and also how these taxes are
classified. Consideration is also given to the principles of a good tax system. The
budgetary process in South Africa is analysed to identify the link between tax rates
and the National Budget.

Secondly, in order to be able to do a tax calculation, you have to understand and be

able to speak the ‘language’ of tax. This unit will also consider some of the core
concepts that a student needs to know in order to calculate the normal tax liability of
a person in South Africa. The following concepts are core to this unit and should be
studied:

National Treasury
Taxation SARS The governmental Fiscal year
A compulsory South African department The SA goverment's
contribution to Revenue Services, responsible for financial year running
government revenue the national tax managing the South from 1 April until
levied by the state collection agency African government's 31 March
finances

National Budget
Return Assessment
Annual event during Tax practitioner
A form, declaration, Determination of the
which Minister of Persons who provide
document or other amount of a tax
Finance highlights tax advice or help to
manner of submitting liability or a tax
state revenue and complete tax returns
information to SARS. refund
expenditure

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 10.2 LEARNING OUTCOMES AND ASSESSMENT CRITERIA

After completion of this topic, a student should be able to:

Learning outcome Assessment criteria

1 For each of the core concepts identified in 10.1 above

and in 10.3.1 below, provide the necessary definition. Complete Bb Quiz 1:

2 List five different types of taxes that are levied in South Multiple Choice /

Africa. Questions (MQC) and Fill

in the Blank
3 Discuss the three most common factors used to classify
taxes and for each of the factors, describe the different
tax classifications and provide an example of each one.

Complete Bb Quiz 1:
MQC’s and Fill in the
Discuss, with examples, the four canons/criteria of
4 Blank / Complete PwC
taxation
Assignment Required 1
(essay)

5 Briefly explain how the budget process in South Africa

works.
6 Discuss the most important interpretation rules for
Complete Bb Quiz 1:
interpreting tax legislation in South Africa, including an
Multiple Choice /
explanation of the contra fiscum rule.
Questions (MQC) and Fill
7 Briefly explain the process in South Africa relating to the
in the Blank
submission of tax returns, assessments and objections.
8 Briefly explain the relevant rules pertaining to tax
practitioners in South Africa.

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 10.3 STUDY MATERIAL

The following paragraphs in Chapter 1 of SANP will be relevant to this unit:

Par Description Additional comments

1.1 Introduction
1.2 Taxation in perspective
1.2.1 Types of taxation
1.2.2 Classification of taxes
1.2.3 Criteria of a good tax system
1.3 The budget process
1.3.1 Medium-term expenditure framework
1.3.2 The national budget
1.3.3 The Income Tax Act 58 of 1962 (the Act)
1.6 Tax returns, assessments and objections
1.7 Tax practitioners
1.8 Summary

10.3.1 THE TAX PROCESS IN SOUTH AFRICA

South Africa, like most other countries, is dependent on the collection of taxes to be
able to provide services to citizens, etc. The collection of taxes can be link to the ‘life-
cycle’ of a taxpayer (which is explained in more detail below). Before being able to
understand the different elements of the life-cycle of a taxpayer, it is important that
you know the following core concepts:

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Core concept Definition
Person A person for normal tax purposes include the following:

 a natural person;
 a company or close corporation;
 a trust;
 the estate of a deceased person; and
 an insolvent estate.

A person for normal tax purposes does not include a partnership ∴

the individual partner in a partnership is the person for tax purposes.
A partnership is NOT a person for income tax purposes, although
(as you’ll see a bit later in the year), a partnership is a person for
VAT purposes.

Natural person A human being regarded as an individual.

Resident A natural person that is either ordinarily resident in South Africa or

complies with the requirements of the physical presence test is
considered to be a ‘resident’ of South Africa for tax purposes.

A non-natural person (for example a company) is considered to be

a ‘resident’ for South African tax purposes if it is either incorporated,
established or formed in South Africa of if the entity is effectively
managed in South Africa.

Some important notes on the concept of ‘resident’:

 A resident for South African tax purposes is taxed on world-wide

income (i.e. irrespective of the source of the income).
 Citizenship has no influence on whether a person is a ‘resident’
for tax purposes. A person can be a citizen of the United States
and a resident of South Africa for tax purposes.
 Any person that is not a ‘resident’ for South African tax purposes
is considered to be a ‘non-resident.
 A non-resident for South African tax purposes is taxed only on
South African source income.

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Core concept Definition

Year of assessment Normal tax is calculated on an annual basis (i.e. over

12 months) and it covers what is known as the ‘year of assessment’.

The year of assessment for the different ‘persons’ for tax purposes
are as follows:

 For a natural person: from 1 March until the last day of February
of the next year.
o Example: The 2021 year of assessment of a natural person
is from 1 March 2020 until 28 February 2021.
 For a trust and a deceased or insolvent estate: from
1 March until the last day of February of the next year.

 For a company or a close corporation: the financial year end

of the company or close corporation.
o Example: the 2021 year of assessment of a company is any
financial year that ends in the 2021 calendar year.
 The 2021 year of assessment of a company with a
30 June financial year end, will cover the period
1 July 2020 to 30 June 2021.

Return A form, declaration, document or other manner of submitting

information to SARS.

A natural person’s normal tax return in South Africa is known as

an ITR12.
A company or close corporation’s normal tax return in South
Africa is known as an IT14.

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Core concept Definition

Assessment The determination of the amount of a tax liability or a tax refund.

In the case of normal tax, the assessment of a person’s tax

liability or tax refund is done by SARS.

In the case of VAT, the assessment of a person’s VAT liability

or refund is done by the vendor. This is also known as ‘self-
assessment’.

Once we have a solid understanding of each of the core concepts, we can move on
to the tax process in South Africa, which can be illustrated as follows (the tax process
is also sometimes referred to as the ‘life-cycle of a taxpayer’):

1. Registration
as a taxpayer by
a person

2. Information
gathering and
6. Penalties
submission of
returns

3. Assessment of
5. Recovery of
tax liaiblity or tax
tax
refund by SARS

4. Dispute
resolution

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1. Registration as a taxpayer by a person.

To register as a taxpayer in South Africa is relatively easy. There are three ways
to register:

 Auto-registration for personal income tax

 Registration through an employer
 Registration at your nearest SARS branch (limited during lockdown).

For more information on how to register as a taxpayer, you can visit SARS’s website
at the following link: https://www.sars.gov.za/ClientSegments/Individuals/How-
Register-Tax/Pages/default.aspx

2. Information gather and submission of returns

After registration as a taxpayer, the next step is to register on www.sarsefiling.co.za.
SARS e-Filing is an online platform, provided free-of-charge to taxpayers for the
submission of tax returns (normal tax, VAT, etc.), to make tax payments, to query
the results of assessments and other related services.

The tax season in South Africa usually runs from July to November every year. The
tax season is the period during which taxpayers gather all their tax information and
submit their returns to SARS. Information that is needed for the submission of
returns include the following (this list is not exhaustive)

 IRP5: A tax certificate that is issued by the employer to the employee at the
end of each tax year, that sets out all the employer/employee related income,
deductions and taxes.
 IT3: A tax certificate received from a financial institution (for example a bank)
that shows a summary of any investment income (interest and dividends) that
the taxpayer has received or that accrued to the taxpayer.

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  Medical aid tax certificate: A tax certificate from a medical aid that sets out the
total contributions paid during the relevant year of assessment and lists
qualifying medical expenses.

The return for a natural person for normal tax purposes is known as an ITR12, while
a company’s normal tax return is a ITR14. A VAT return is known as a VAT201.

3. Assessment of tax liability or tax refund by SARS

The information that a taxpayer submits to SARS through a return is then assessed
by SARS to determine the taxpayer’s tax liability or tax refund. The document that
a taxpayer receives that sets out SARS’s assessment of the taxpayer’s liability or
tax refund is known as an ITA34.

4. Dispute resolution
When a taxpayer receives an assessment from SARS and they do not agree with
SARS’s assessment, the taxpayer has the right to dispute the assessment. There
are specific procedures to follow to lodge an objection to an assessment, which is
set out in the Tax Administration Act.

5. Recovery of tax
SARS’s main role is to collect taxes. The obligation to pay tax is not automatically
suspended by an objection or appeal. This is known as the “pay-now-argue-later”
rule. The obligation to pay tax under dispute can only be suspended by SARS upon
request by the taxpayer.

6. Penalties
Failure to submit returns on the required dates, failure to pay the amount of tax
outstanding and any other non-compliance on the part of the taxpayer could result
in SARS levying penalties. There are a number of tax penalties, including
administrative penalties for administrative non-compliance, understatement
penalties for serious non-compliance and then specific penalties for criminal
offences, including tax evasion.
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 10.4 LECTURER’S GUIDANCE

Topic 1 forms the cornerstone of your tax studies. If you do not know what tax is, how
it is generated and where it fits into the bigger picture, the actual calculation thereof
essentially means nothing. For this topic you need to study the theory to lay the
foundation for the learning units to come.

Important

Topic 1 Introduction will only be assessed in Bb Quiz 1 as well as in the PwC

Assignment. It will not be assessed during any of the other assessment
opportunities during the 2021 academic year.

10.5 HOMETAX

HOMETAX
LECTURER COMMENTS
ACTIVITY

iQSAT 1.1 This is an introductory question that requires that you do a bit of ‘googling’.
Recommended websites: www.treasury.gov.za and www.sars.gov.za

iQSAT 1.2 This question looks at the principles of a good tax system and the classification
of taxes – both fundamental aspects of taxation.

iQSAT 1.3 Another introductory question that requires some googling – take note of the
different corporate tax rates of the relevant foreign jurisdictions.

Summary Create a summary of the four principles of a good tax system, as stated by Adam
Smith – you will need this information for Required 1 of the PwC Assignment.

Our next topic is Normal Tax (Topic 2) and it is all about calculating the taxable
income of a person and ultimately, the person’s normal tax liability. We are going to
be looking at the different types of persons for tax purposes, the framework for the
calculation of taxable income and how to actually calculate the normal tax liabilities of
both companies and natural persons.

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This is a ‘notes’ page that is included in the printed study guide for students to
make notes and summaries on. It is based on the Cornell-method of note-
taking. If you want to find out more about this method of note-taking (which I
recommend wholeheartedly!), you can have a look at the following resources:

Information on Cornell notes:

https://en.wikipedia.org/wiki/Cornell_Notes
How to take Cornell notes: https://www.youtube.com/watch?v=WtW9IyE04OQ
Other note-taking systems: https://www.youtube.com/watch?v=AffuwyJZTQQ&t=181s

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