How Is Income Tax Collected In South Africa?

By Dave Nyam •  Updated: 01/23/24 •  5 min read

Income tax offers the bulk of earnings for the South African government. All kinds of earnings, including citizens, organizations, and trusts, are liable to this remittance. Regarding tariffs, the South African Revenue Service (SARS) is the body in control. Various methods exist for SARS to collect income tax, including withholding funds prior to payment, requesting payments throughout the year, verifying tax returns, and reviewing data. Numerous public services, such as healthcare, education, transportation, pensions, and the military, are funded through income taxes.

- ADVERTISEMENT -

How is tax collected in South Africa?

People in South Africa pay taxes, which goes toward funding the government. There are both direct and indirect taxes involved here. Income, capital gains, dividends, donations, and estate duties are all direct tariffs levied on financial assets possessed by citizens or agencies. The items and services that citizens and organizations trade and maximize are liable to indirect tariffs such as value-added tax (VAT), customs duty, excise duty, fuel levy, and environmental levy.

Government agencies get varying forms of taxation from a vast range of sources. Most of the earnings from tariffs like income, value-added, customs, and excise head to the federal government. Tariffs on gaming, alcoholic drinks, and driver’s permits head to the provincial government. Income from taxes, such as property taxes, power surcharges, and garbage fees, goes toward local government funding.

The kind and location of the tax determine which entities are responsible for collecting it. Tariffs like income, VAT, customs, excise, and others are primarily fetched by SARS. Varied extra bodies are responsible for fetching tariffs; these include the National Treasury, which is in control of fuel and environmental levies; the Department of Trade and Industry, which is in control of gaming and liquor tariffs; and the varied local governments, which are in control of fetching property rates and other charges.

Who collects income tax in SA?

SARS, the taxman in South Africa, collects income tax from various sources.

Individuals? They’re taxed on their earnings from their jobs, businesses, investments, and so on. The tariff rate scales from 18 percent to 45 percent, based on the figure they receive. They must file a tariff return every year and clear any taxes due.

Companies aren’t left out. They’re taxed at a flat rate of 28 percent on their income. They, too, have to file an annual tax return and square up with SARS.

Trusts also have their share. They’re taxed at a flat rate of 45 percent on their income. Like anybody else, they must file a yearly tariff return and clear up.

- ADVERTISEMENT -

And next, other bodies like alliances, co-operatives, societies, associations, and non-profit companies add up. They’re taxed according to different rules and rates based on what they are and what they do. They must also file an annual tax return and pay their tax liability. It’s a busy time for everyone when tax season rolls around!

How does SARS collect tax?

SARS, South Africa’s tax authority, has a few tricks up its sleeve when it comes to collecting taxes.

First off, there’s withholding tax. This is when the payer, say your employer or bank, holds back a portion of your earnings or interest and sends it straight to SARS.

Next, we have provisional tax. This is for folks with income other than a salary, like a business or rental property. They pay their estimated taxes in two or three installments throughout the year.

Then there’s the self-assessment tax. When filing your annual income tax return, you calculate your taxable income and tax liability.

Lastly, SARS conducts tax audits. They check all your submitted information and documents to ensure everything’s above board. You could incur additional tax, penalties, and interest if they find any discrepancies or errors. As a result, it’s always indispensable to keep every detail precise and up-to-date!

What differentiates income tax and PAYE?

Each tariff on the cash you earn or generate, like wages, profits, compensations, capital gains, etc., is called “income tax.” Based on your yearly taxable earnings, SARS computes the income tax figure you owe, which you should clear after filing your income tariff return for that year.

On the other hand, the Pay As You Earn, mostly known as the PAYE system, discharges income tariffs in advance. By paying income tax and occasionally social insurance benefit taxes directly to SARS on your behalf, your employer is said to be participating in PAYE. Your company will provide you with an IRP5 certificate detailing your earnings and taxes paid. On this certificate, PAYE is displayed.

In other words, income tax represents the tax you owe in reality, whereas PAYE represents the tax you have previously paid. Following their assessment of your income tax return, SARS deducts PAYE from your income tax liability and either pays the remaining amount or reimburses you.

- ADVERTISEMENT -

Keep Reading

How to Change From Paye to Provisional Taxpayer

How to Change From Paye to Provisional Taxpayer

More highlights will be on registering as a provisional taxpayer and calculating your first tax as a provisional taxpayer. 

What Is Capital Gains Tax In South Africa?

What Is Capital Gains Tax In South Africa?

And to sweeten the deal, CGT offers certain exemptions and concessions for specific taxpayers and circumstances.

How to Report Tax Fraud

How to Report Tax Fraud

You can do this by taking different measures. Read on to learn how to report tax fraud.    

How To Complete The Tax E-Filing Registration Process

How To Complete The Tax E-Filing Registration Process

Setting out on your tax e-filing journey in South Africa is a breeze. Just follow this roadmap:

How Much Is PAYE Tax Deduction In South Africa?

How Much Is PAYE Tax Deduction In South Africa?

What Happens After Submitting Your Tax Return?

What Happens After Submitting Your Tax Return?

Today, we'll explore what happens to your tax return after you click ‘submit’,  and what you can expect to hear from SARS.

How Does Auto-Assessment Work?

How Does Auto-Assessment Work?

Today we are unpacking some of the key aspects of this new system, and what you should know about it.

Penalty On Non-Payment Of Advance Tax In South Africa

Penalty On Non-Payment Of Advance Tax In South Africa

This article explains the fines and interest, the penalty code, the late and self-assessment tax penalty, and how to see and pay your SARS penalty.

What Is A Settlement Agreement In South Africa

What Is A Settlement Agreement In South Africa

This blog post will be centred around a settlement agreement in South Africa. Other related questions on settlement agreements will be expatiated

What is SARS Income Tax Verification?

What is SARS Income Tax Verification?

What is SARS Income Tax Verification? Let us give you more details on SARS tax verification and how to verify your SARS account. 

IT14SD – Company Income Tax Supplementary Declaration

IT14SD – Company Income Tax Supplementary Declaration

IT14SD – Company Income Tax Supplementary Declaration. Read on to learn about IT14SD Company Income Tax Supplementary Declaration.    

How to Claim A Refund For Excess TAX Paid

How to Claim A Refund For Excess TAX Paid

This piece will update you on how to receive a SARS repayment, who can obtain a refund, what to do to acquire a refund

Difference Between VAT and TAX?

Difference Between VAT and TAX?

What Is the Difference Between VAT and Tax in South Africa? This guide explains the difference between VAT and tax. 

Taxation Rules For Gratuity

Taxation Rules For Gratuity

This writing will explain gratuity, cover the laws involving gratuities, whether or not they are taxable, how a lump sum gratuity is tariffed, and how a leave gratuity is evaluated

How to Check SARS Tax Compliance Status

How to Check SARS Tax Compliance Status

Today, we are diving deeper into how to check (and prove) your SARS tax compliance status if you need to