EVOLUTION OF SOUTH AFRICAN TAXATION FROM THE UNION OF SOUTH AFRICA TO THE REPUBLIC OF SOUTH AFRICA

INTRODUCTION

The Republic of South Africa is the youngest country in the world to gain independence from its former colony, the British Empire. The country prior, 1948, was known as the Union of South Africa, and broken up into four colonies, namely:

1. Cape Colony 
2. Natal Colony 
3. Transvaal and the 
4. Orange River Free State. 

With such an administration, each colony governed itself and was responsible for its own budget.
In 1948, Apartheid South Africa was born. This saw the country being divided into small indigenous groups known as Bantustans, which too, was self-governing and oversaw their own finances and budget.

In 1994, the country held its first democratic elections, which saw Africans being allowed to vote and contest senior state positions and being able to move around the country freely, without the need of a dom-pass or being banned from certain areas being known as “whites only”.
Whatever transition the country might have faced, each transition came with a new legislature.
This essay seeks to unpack the evolution of taxation in South Africa, from its colonization days under the British Empire, as the Union of South Africa, to its Afrikaner Broederbond rule, South Africa, to the modern Democratic Republic of South Africa.

UNION OF SOUTH AFRICA

SOUTH AFRICA

DEMOCRATIC OF SOUTH AFRICA

History of Taxation in South Africa 

HISTORY ON THE INCOME TAX ACT

Pre the establishment of the Union of South Africa, each colony depended on its own trade duties, indirect taxes and user fees for their respective revenue income. This was changed in 1910. This change saw all general taxes being implemented in the Cape and Natal colonies.

Post the formation of the Union of South Africa, there was a change in the Income Tax Act, with the Income Tax Act 28 of 1914 being passed in legislation. This Act gave room to the removal of general taxes being implemented in the Cape and Natal colony. This was also the first Act to be introduced under the new formation. This Act gave room for the Union of South Africa, to tax on profits and gains from sources in the Union of South Africa. In 1917, the Union, passed a new Act in 1917, the Income Tax Act 41 of 1917, which replaced Income Tax Act 28 of 1914 and the Mining Tax Act 6 of 1910.

This new Act was amended in 1925, with the Income Tax Act 40 of 1925 being passed into legislation and replacing the previous Act. Tax on donations was first introduced in 1955 and was included in this amended Act. All Income Tax Acts from 1941 to 1961 were amended into one Act, under Income Tax Act 58 of 1962, which is still into existence even today. Ever since then, many amendments to the Act have been made. Most of these amendments have a direct impact on the individual taxpayer in the Republic of South Africa, such as the introduction of the PAYE system in 1963, termination of Provincial Income Tax in 1971, the introduction of Fringe Benefits in 1984, as well as the introduction of the tax on Capital Gains in 2001. 

THE EFFECT OF THESE CHANGING TIMES ON SOUTH AFRICANS
Apartheid did not have a major effect on income tax in South Africa, as there were no race-specific rules in the income tax law. Due to the conservative mindset of the apartheid government, the tax laws did encourage married women to be home executives (housewives). There were separate income tax tables for unmarried persons, married men (taxed less as they were assumed to be the breadwinner of the family) and married women (taxed more than unmarried persons because they were supposed to be home executives).

This created an unintended consequence as it was more tax-advantageous for two working people to live together in a de-facto relationship than to get married. Polygamy was legal in South Africa, "second and subsequent wives" were taxed as "unmarried persons".

The international attitude towards Apartheid also had an effect. Many countries would not cooperate with the South African government and as a result, the South African income tax was limited to income sourced within South Africa. Foreign sourced income was tax-free.

After the post-apartheid constitution was adopted, all forms of discrimination became unconstitutional, and the income tax law was changed to remove all discrimination between men and women, married and unmarried, large families and small families.

Income Tax Act No 58 of 1962

As previously stated, the Income Tax Act 58 of 1962 was amended and divided into 112 sections and 10 schedules. The amended Act contains provisions for the levying of four different types of taxes, namely: 

1. Normal tax 
2. Donations tax 
3. Dividends tax 
4. Withholding taxes

On an annual basis, new amendments are made to this act through The Taxation Laws Amendment Act and The Revenue Laws Amendment Act. These amendments are a result of the new proposals through the Budget Speech by the Minister of Finance before Parliament. These amendments are subject to the approval of Parliament, which then gets passed into law.  

NORMAL TAX 

Normal Tax is a levy that is imposed on all persons who have taxable income. This type of tax is an annual tax that is calculated by applying predetermined rates to the taxable income of a person, be it juristic or natural. This tax is divided into individual income tax and company income tax. The rates for the 2019/2020 financial year are: 

• Individuals and special trust – Ranging from 18% - 45% depending on the income)  
• Trust other than special trust – 45%  
• South African companies – 28%  
• Small Business Corporation – ranging between 0% and 28% depending on the income 
• Retirement – first R500 000 exempt from tax and thereafter scaled on 18% - 36%

Taxable income (R)	Rates of tax (R)
0 – 195 850	18% of taxable income
195 851 – 305 850	35 253 + 26% of taxable income above 195 850
305 851 – 423 300	63 853 + 31% of taxable income above 305 850
423 301 – 555 600	100 263 + 36% of taxable income above 423 300
555 601 – 708 310	147 891 + 39% of taxable income above 555 600
708 311 – 1 500 000	207 448 + 41% of taxable income above 708 310
1 500 001 and above	532 041 + 45% of taxable income above 1 500 000

DONATIONS TAX
This type of tax was introduced in 1955 when the state prioritised the Estate Duty Act. Unlike other taxes, this type of tax does not tax on income rather on the transfer of wealth from one person to another. Donations tax is levied at a flat rate of 20% on the cumulative value of property donated not exceeding R30 million, and at a rate of 25% on the cumulative value exceeding R30 million. The first R100 000 of property donated in each year by a natural person is exempt from donations tax. In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R10 000 per annum in total.


DIVIDENDS TAX 
Dividends tax is a final tax at a rate of 20% on dividends paid by resident companies and by non-resident companies in respect of shares listed on the JSE. Dividends are tax exempt if the beneficial owner of the dividend is a South African company, retirement fund or other exempt person. Non-resident beneficial owners of dividends may benefit from reduced tax rates in limited circumstances. The tax is to be withheld by companies paying the taxable dividends or by regulated intermediaries in the case of dividends on listed shares. The tax on dividends in kind (other than in cash) is payable and is borne by the company that declares and pays the dividend.


WITHHOLDING TAX 
Withholding tax is an advanced payment of the normal tax. It is payable by the employee to South African Revenue Services (SARS). It has a tax rate of 15% on the gross amount which is from South African sources of royalties, interest, amounts payable to non-residents for activities performed in South Africa. 7,5% is withheld from payments to non-resident individual selling immovable property and 15% is withheld from non-resident rust selling immovable property.

TURNOVER TAX

• MICRO-BUSINESS:  

A person may only qualify as a micro business if that person is a natural person, a company, deceased or insolvent estate of a natural person registered as a micro business at the time of death or insolvency. This type of business is taxed on it's year-end using the following table

TAXABLE TURNOVER(R)	RATE OF TAX(R)
0-335000	0%
335001-500000	1% of the amount above 335000
500001-750000	1650+2% of the amount above 500000
750001 and above	6650+3% of the amount above 750000

• FARMING:

Farming operations include livestock farming, crop farming, milk production and plantation farming. A person getting income from these farming operations may under paragraph19(5) of the First Schedule, choose to be subject to the tax according to the rating formula set out in section5(10).

• RETIREMENT 

With effect from 1 March 1998, retirement funds are amounts that are contributed to pension, provident and retirement annuity funds during the year of assessment and are deductible by members of those funds. The deduction is limited to the lower of R500 000 or 27.5% of the taxable income, before the inclusion of a taxable capital gain. In terms of lump sum payments, the first R500 000 is exempt from tax and thereafter taxed according to the taxable income bracket limited to 130 500 + 36% of taxable income above 1 050 000.

• PROVISIONAL TAX

A provisional taxpayer is any person who earns income by way of remuneration from an unregistered employer or income that is not remuneration or an allowance or advance payable by the person’s principal. An individual is not required to pay provisional tax if the individual does not carry on any business and the individual’s taxable income 

• will not exceed the tax threshold for the tax year; or  
• from interest, dividends, foreign dividends, rental from the letting of fixed property and remuneration from an unregistered employer will be R30 000 or less for the tax year. 

Provisional tax returns showing an estimation of total taxable income for the year of assessment are required from provisional taxpayers. Deceased estates are not provisional taxpayers. 

• FRINGE BENEFITS

Was first introduced in the year 1986. It was implemented to overcome problems in the income tax law that allowed benefits other than salaries and wages to be free of tax. The taxable value is 3.5% of the cash cost including VAT per month each vehicle. The tax rate as from 1 August 2017 is 7.75% per annum on Fringe Benefits.

• CAPITAL GAINS TAX

Capital gains on the disposal of assets are included in taxable income. The maximum effective rate of tax: 

• Individuals and special trusts 18%  
• Companies 22.4%  
• Other trusts 36% 

Events that trigger disposal include a sale, donation, exchange, loss, death and emigration. The following are some of the specific exclusions:  

• R2 million gain or loss on the disposal of a primary residence;  
• most personal use assets; 
• retirement benefits; 
• payments in respect of original long-term insurance policies; 
• annual exclusion of R40 000 capital gain or capital loss is granted to individuals and special trusts; 
• small business exclusion of capital gains for individuals (at least 55 years of age) of R1.8 million, when a small business with a market value not exceeding R10 million is disposed of; and 15 
• instead of the annual exclusion, the exclusion granted to individuals is R300 000 for the year of death.

Was introduced into the Income Tax Act on 01 October 2001. It is effectively charged by adding a percentage of the increase in the value of an asset, that was actually disposed of for more than its base cost, to the taxpayer's taxable income. Section 26A states that a taxable capital gain is to be included in taxable income.

OTHER TAXES 

• Value Added Tax

The Value-added Tax (VAT) was introduced in 1991 to replace the General Sales Tax and at a standard rate of 14 per cent. The VAT is levied on a very broad base. Certain education and health services, financial services, and services of non-10 governmental organisations were also exempt. Furthermore, certain commodities consumed mainly by low-income households were “zero-rated” VAT increased in 2018 to 15%

• Transfer Duty

Was introduced in 1686 and is the oldest tax still in use in South Africa. It is an indirect tax that is paid on the transfer of fixed property in South Africa. It is to be paid by the purchaser.

• Securities Transfer Tax

Is defined as a depository receipt in a company’s levied on the transfer of security. Was implemented from 1 July 2008 under the Securities Transfer Tax Act, 25 of 2007 as well as the Securities Transfer Tax Administration Act 26 of 2007. The tax is imposed at a rate of 0.25% on transfer of listed and unlisted securities.

• Customs and Excise Duty

Are imposed on the numbe r of consumer goods. Excise duties have increased on tobacco and alcohol as from 1 November 2017 to 10.25%.

CONCLUSION 

Income Tax has greatly improved and has become inclusive of non-discriminating based on gender as done previously. Despite South African tax legislation being ranked as one of the best in the world, countless debates are still being held about the effect of the tax on the poor and the management of tax funds in South Africa, which is currently haunted by non-accountability and corruption.

BIBLIOGRAPHY

BOOKS:

1. Huxham, K. &Haupt, P.2008.NOTES ON SOUTH AFRICAN INCOME TAX.SA: Cape Town.H&H PUBLICATIONS

2.De Koker, A., Williams, RC.&Silke, J.2012-2013.SILKE TAX YEARBOOK.SA: Cape Town

JOURNALS:

Goldswain, G.K.&Swart, O.2015.SOUTHERN AFRICAN BUSINESS REVIEW,19(1):71-96, January 2015

ACTS:

South Africa.1962.Income Tax Act No.58 of 1962.Pretoria: Government Printer

INTERNET:

1.Chapter 3: The imposed tax burden in South Africa [Online].Available from:www.sahistory.org.za/topic/union-South-Africa-1910.[Accessed 29/03/2018]

2.www.sars.gov.za.

3. SOUTHERN AFRICAN BUSINESS REVIEW[Online].Available from:https://journal.co.za/contents/sabr/19/1/EJC175550.[Accessed 29/03/2018]

INSTITUTION:

South African Revenue Services Cape Town Offices