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Tax 101

Is all your free cash flow going to SARS and you don’t know what to do about it?

Before delving into the solutions against overpaying taxation it is important to differentiate between the different types of current taxation in South Africa

Income taxation

This is the taxation levied on companies by SARS, on their taxable income (Taxable Profit) for the period. Generally this is levied at 28% on the Taxable income; however, there are a number of tax breaks available to entities to help reduce this, depending on the specifics and nature of the entity in question.

Typically this taxation is collected Via 2 (or 3 if necessary) 6 monthly payments, based on estimated totals of taxable income for the period.

Broadly speaking, if the estimates on which each 6 monthly payment are made exceed the actual taxable income for the period, the taxpayer will be due to a refund if they are less than the actuals the taxpayer will then be liable to make an additional payment. 

PAYE

PAYE or Pay-As-You-Earn is taxation which is levied on an employee’s individual salary and collected on a monthly basis by their employer and paid over to SARS.

When the individual submits their tax returns to SARS the amounts paid on their behalf by their employers is deducted from their total tax liability and if they have over or under paid taxation they are then either refunded or need to pay to SARS.

Individuals are taxed on a sliding scale according to the South African taxation tables, meaning the more they earn the greater their tax liability becomes. The sliding scales range between 18%-45%.

VAT

Value added tax is a consumption based tax placed on a producer wherever there is value added at a stage of production.

Typically producers will have Vatable and non-Vatable inputs (Expenses) as well as Outputs (Incomes).

Depending on the type of VAT registration an entity will submit periodic recons to SARS (Usually monthly or bi-monthly), reconciling these inputs and outputs and determining if any monies are owed or owing to or by SARS.

The current vat rate in South Africa is 14%.

There are also various thresholds for who can register for VAT, as determined by the VAT Act.

Dividends Withholding Tax

This is a tax paid and withheld by entities on behalf of individual taxpayers to whom dividends are paid.

The tax is levied at flat rate of 20% on the gross dividend declared by companies.

How we can help you

In terms of both income taxation and PAYE, there are a number of tax deductions made available by SARS to reduce both of these expenses. The industry leading tax experts at INCFIN can help restructure both of these taxes for your business, ensuring that the most tax efficient structures are adopted, only paying what is necessary to SARS.

Our Industry leading tax experts will ensure that all VAT returns are submitted timeously and in the format required by SARS, ensuring that you are paid your VAT refunds without unnecessary delay or hassle.

Call us today for an obligation free 1 hour consultation.

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