Lesson 1, Topic 1
In Progress

1.15. Determine, compare and describe and debate aspects of the national economy

ryanrori January 25, 2021

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In this section you are required to:

  • Calculate values correctly. 
  • Use mathematical tools and systems effectively to determine, compare and describe aspects of the national economy. 
  • Base debating points on well-reasoned arguments and support the debating points by mathematical information

The debating process is bound by a set of rules. The rules govern the sequence and time frame of the debate. 

Note: Refer to the Verbal Communication module for more details about debating

A debate includes three groups. 

  • affirmative team, 
  • the opposing or negative team 
  • the judge(s). 

Your task is to prepare to argue and support a position assigned to you. You will do the necessary research to support your ideas, prepare to both pose and answer questions and practice your presentation so that it is well polished.

Debating the aspect: Tax

“The income tax contribution goes towards building and maintaining your home, South Africa” SARS.Income tax is payable to SARS (South African Revenue Services), which is responsible for collecting taxes from taxpayers on behalf of the Government.

The South Africa tax system consists of different kinds of taxes, which can broadly be broken up into two categories:

  • Direct taxes – these are charged on income
  • Indirect taxes – these are charged on transactions (i.e. tax on spending rather than income)

SARS (South African Revenue Services) is an independent body who are responsible for the administration of the South African tax system and for collecting the direct and indirect taxes.  Generally, if you have a tax problem or need information on tax, you should contact SARS or visit their website at www.sars.co.za

The tax that we pay primarily is used by the state to fund its expenditure.  Our taxes support the building, maintenance and upgrading of the infrastructure of this country, such as roads, schools and hospitals, and enable the government to carry out its duties to its citizens effectively, such as supporting old age pensioners and Aids orphans. 

Whether we are satisfied with those services is not relevant to this exercise, as we are only interested in the purely mathematical implications of tax on our and our company’s budgets.

The tax received by the state is also used to achieve certain economic and social objectives, such as assisting the poor, reducing unemployment and controlling inflation:

  • VAT (Value Added Tax) is an indirect tax that you generally pay a registered vendor on the supply of goods and services to you, or others pay you (if you are a registered vendor) on the supply of your goods and services to them.  The current VAT rate in SA is 14%.
  • UIF (Unemployment Insurance Fund) is a direct tax (sometimes called payroll tax because it is deducted from your salary).  It is compulsory for all employees and employers to make a monthly contribution to this fund.  SARS guidelines for employers – Tax Year 2005 states: “The amount of the contribution payable by an employee must be 1% of the remuneration aid to him by his employer” and also that :The amount of the contribution payable by the employer in respect of any of its employees must be equal to 1% of the remuneration paid to the employee”.  Therefore the total contribution is calculated at 2% of an employee’s earning up to the prescribed amount per month.
  • Income Tax is also a direct tax that you pay on your taxable income (money that you earn) at graduated rates.  To determine your tax liability (i.e. how much tax you have to pay) you need to refer to the SARS tax tables.
    • Gross income – your tax liability is calculated on your gross income – which is your total earnings before any deductions have been taken off such as medical aid, pension, etc.
    • Net income – is the amount of money that you receive in your bank account (or in cash) after your tax and other deductions have been taken off.
Personal Tax

Every individual who receives taxable income in excess of a specific amount in a year of assessment is liable for paying income tax.

Examples of the different kinds of income that an individual can be taxed on:

  • Income from employment (salary, bonus, overtime, lump sum payments)
  • Income from a business or trade
  • Investment income (interest, rental income, foreign dividends)
  • Annuities
  • Pensions

Individuals earning less than a specified amount per year are exempt from paying tax. Note: The amounts change regularly.

Standard Income Tax on Employees (SITE) is deducted from individuals earning more than a specified amount per year. Those earning less than this amount do not have to fill in an income tax return.

Pay as you earn (PAYE) is deducted from a specified amount per year according to certain formulae, which can be found in tax tables compiled by the South African Revenue Services. 

Your employer is bound to deduct tax according to SARS’s directives and supplies you with an IRP 5 form at the end of the financial year, which has to be submitted to SARS timeously. The maximum rate of tax a private individual pays is about 40% per annum. Note: The amounts change regularly

To calculate your personal tax, you first need to know your taxable income. Your gross income (any income you receive, including commission and interest) less exemptions and deductions will give you your taxable income. Tax is calculated using a tax table. If any rebates apply, these are subtracted to give the final tax payable. The tax tables are structured so that the more you earn, the more tax you pay. Example: You pay tax of 40% on any income above R240 000 per annum – this is called the maximum marginal tax rate. 

Company Tax

In addition to normal company tax and VAT, these taxes include the Regional Services Council levies, Skills Development Levies and the employer’s portion of Unemployment Insurance Fund payments.

Domestic companies are taxed at a flat rate of 30%. However, due to the secondary tax on companies, which is levied at 12,5% on the net amount of dividends declared by a company, the effective rate is higher than 30%. The combined rate is however not 42,5%, but is effectively 37,78% of all profits distributed. (Note: The amounts change regularly)

On a distributed profit of R500 000, for example, a company would pay R188 900. Note the numbers change regularly.

Profit Calculations

Profit is the money that he has left over once the expenses have been paid 

Profit = income – expenses

Profit margin is the profit left after expenses have been paid expressed as a percentage of the expenses

Profit Margin = Profit / Expenses x 100%