TAX LAW NOTES: STUDY UNIT 1 INTRODUCTION TO …

1 CLS cc 1. LML4804 - TAX Notes TAX LAW NOTES: STUDY UNIT 1. INTRODUCTION TO TAXATION. State Expenditure and Financing: State expenditure is financed through: 1. Increasing the supply of money in the economy minting own money;. 2. Loans;. 3. Generating own income. Generating states Own Income can be done by;. 1. Sale or lease of property;. 2. State enterprises and monopolies;. 3. Taxes, duties, levies, and user charges. What is tax? Compulsory contribution, payable in money or in kind, to a taxing authority, aimed at funding public expenditure. It can't be levied as a counter performance for identifiable public services and need.

2 It does not necessarily take the taxpayers ability to pay nor the benefits received from the public services into account. Taxes, Duties and Levies: these terms are synonymous and are state income. They are just used loosely by lay people and politicians. User charges these are charges linked to a specific type of service used. Income received from this service is used for that specific service. Examples: Toll Road Fees, Water and Electricity. The ideal tax system: There must be a sufficient connection between the State and the taxpayer to justify the taxpayer's tax liability. The connecting factors: 1) SOURCE income derived from a source within the Republic.

3 2) RESIDENCE (income accrues to a resident of the taxpaying state). 3) CITIZENSHIP income accrues to a citizen of the Taxpaying State. South Africa predominant factor is source. Critical Law Studies CC . CLS cc 2. LML4804 - TAX Notes The Tax Base: The bases on how tax can be paid 1) Benefit theory: taxed in accordance with the benefits he receives from the various public services. (Impossible to determine how much a person benefits from a particular service/s). 2) Ability to pay theory: make a contribution corresponding to the sacrifice the tax requires of him and in the end everyone must make an equal sacrifice (has too many practical problems) SA.

4 3) Ability to earn theory: ability to earn can also be used as a criterion but it's problematic, if someone inherits money etc. THREE broad tax bases are commonly utilized: 1) INCOME. 2) CONSUMPTION (expenditure). 3) WEALTH. An equitable tax system: The Ideal tax system = Equality criteria The Margo Commission mentioned the following criteria: Tax neutrality a person should not be influenced by the tax system to choose one course of action above another so tax liability will be reduced. Equity horizontal equity requires that similar persons that are in similar circumstances will be taxed.

5 Vertical equity means that taxpayers experiencing different circumstances will be taxed differently equal sacrifices. Certainty and simplicity certain and simple to assess and collect. Cost-effectiveness cost of collecting tax shouldn't be high. Direct and indirect taxes: DIRECT: It is intended and expected that the person who is legally bound to pay the tax is the same person who will ultimately be poorer for paying the tax, tax on the person's income. indirect : The person who has the legal obligation to pay the tax is not necessarily the person who bears the tax in the end and thus becomes poorer.

6 The taxpayer will pass on the tax to someone else, VAT. Critical Law Studies CC . CLS cc 3. LML4804 - TAX Notes Progressive, regressive and proportional taxation: PROGRESSIVE: the greater the persons tax base, the greater his tax burden (SA income tax). REGRESSIVE: the greater the persons tax base, the less of a tax burden he'll have (VAT). PROPORTIONAL: everyone pays the same % of his or her tax base. CONCEPTS: Tax Base: It's the specific source from which a taxing authority intends to derive tax revenue. Taxpayer: The person saddled with the liability of paying tax. Taxable value: The portion of tax base, expressed as an amount, to which the tax rate is applied.

7 Tax rate: A % applied per unit of taxable value in order to calculate the amount of the tax payable ( 14% VAT). Tax incidence: Formal incidence rests on the person who is legally obliged to pay tax but the effective incidence falls on the person who is made poorer by the imposition of the tax. Tax burden: Indication of the total impact of tax on a person. Tax law: Body of law dealing with the charging, assessment and collection of taxes. Working through tax legislation Checklist: 1. Establish what the tax base is. 2. Identify the possible tax payer. 3. Ascertain the date or period of liability.

8 4. Establish the taxable value. 5. Determine the taxable rate. 6. Establish the date of payment. 7. Are there any exemptions. Critical Law Studies CC . CLS cc 4. LML4804 - TAX Notes STUDY UNIT 2. THE SOUTH AFRICAN TAX SYSTEM. TAXES LEVIED BY THE NATIONAL SPHERE OF GOVERNMENT. All of the imposts levied by the national sphere of government are administered by the South African Revenue Service (SARS). The most important taxes administered by the SARS are Income tax on individuals. Income tax on companies, Value-added tax (VAT), Estate duty, Donations tax, Capital gains tax Income, Transfer duty, Stamp duties, Secondary tax on companies, etc.

9 TAXES LEVIED BY THE PROVINCIAL SPHERE OF GOVERNMENT. Section 228 of the Constitution states that a provincial legislature may impose taxes, levies and duties other than the income tax, value-added tax, general sales tax, rates on property or customs duties . It also states that these may not be exercised in a way that materially and unreasonably prejudices economic activities. TAXES LEVIED BY THE LOCAL SPHERE OF GOVERNMENT. Section 229 of the Constitution stipulates that municipalities may impose rates on property ( immovable property tax) and other taxes appropriate . to local government.

10 However, such taxes may not be levied in a way that materially and unreasonably prejudices economic activities. Municipalities may not levy an income tax, value-added tax, general sales tax or customs duties. SOURCES OF SOUTH AFRICAN TAX LAW. Legislation and case law Legislation: The Constitution and various tax statutes. Tax-related cases: South African Law Reports, South African Tax Cases Reports and Juta's Tax Law Reports. Although judgments of the Tax Court do not constitute precedents, they have some persuasive value. Secondary sources Textbooks and journals. TAX LAW AND THE BILL OF RIGHTS.