WHY WE GET TAXED

5 PAGES FILLED WITH TIPS ON HOW TO UNLEASH THE INVESTOR IN YOU –

In simple terms, tax is the money deducted from your salary and given to the government to pay for the things that make our lives easier. David Kop from the Financial Planning Institute says we need to think of South Africa as a company and taxes are one of the major sources of income needed to run the company.

“Taxes are used to ensure that we’ve got roads, schools, police services and for government to make sure that the country moves forward.”

There are essentially three types of basic taxes.

Ettiene Retief, a professional tax specialist, says you get direct, indirect and provisional taxes.

Indirect taxes are the taxes imposed on food products or basic consumables that we use every day.

Things like tobacco, alcohol and, most recently, sugar taxes have a higher tax rate on them to help reduce the habit of using them.

Another version of an indirect tax is value-added tax (VAT), recently hiked to 15%.

He says: “The reason why they are called indirect taxes, is because they are automatically added to the price. It doesn’t require you to go [through] any extra steps to do it.”

The taxes are claimed automatically.

Then you have direct taxes. If you are formally employed and earn a monthly salary, your employer deducts a certain amount of money from your personal income, known as a pay as you earn tax or employee tax.

Retief says tax is calculated based on how much you earn. The more you earn, the more tax you pay.

If you’re an entrepreneur, on the other hand and starting a business or freelancing, you become a provisional taxpayer. “... you have to pay a provisional payment every six months of essentially your estimated tax liability,” says Retief.

Every six months you estimate what your full year tax should be, and half of that liability you pay over to Sars.

If you’re an employed person your employer deducts the tax automatically, otherwise you can get a registered tax practitioner to guide you when filing a tax return. However, Retief warns, it is very important that you understand or be aware of your own taxes.

Henry Deventer at Old Mutual Wealth says it is your responsibility to make sure you are registered, with a tax number, that you submit your annual tax return and keep record of your important statements, or you can incur an ugly penalty.

“Make sure that you submit your annual tax returns. If you fail to do that, you become liable for penalties.”

Retief concurs: “As a taxpayer, it’s your responsibility to know what’s going on in your taxes.” You don’t want a surprise call from Sars saying “you owe us money”.

Kop says the following are key things to remember when filing a tax return.

Go to a Sars office, with all your necessary supporting documentation, which would normally be:

IRP5 from your employer, which is a summary of the income you earned

Your medical aid tax certificate, and

Your retirement annuity tax certificate (if you have one).

A Sars official will then help you file your tax return.

The second way of filing a tax return is through Sars’ e-filing system, where you can register and file your return online.

The third option is to ask a registered tax practitioner to help you or do it on your behalf.