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 Claim Work From Home Tax Credit In South Africa

How to Claim Work From Home Tax Credit In South Africa

This handbook will guide you through claiming the work-from-home tax-related credit in South Africa.

How Many Times Can I Revise Tax Return?

How Many Times Can I Revise Tax Return?

so today we’ve compiled this guide to help, exploring everything you need to know about tax return revisions and SARS.

How to Avoid Paying Capital Gains Tax On An Inherited Property

How to Avoid Paying Capital Gains Tax On An Inherited Property

How to Avoid Paying Capital Gains Tax On an Inherited Property. We'll briefly touch on avoiding inheritance tax in South Africa.

Who Is Exempt From Paying Tax in South Africa?

Who Is Exempt From Paying Tax in South Africa?

Who Is Exempt From Paying Tax in South Africa? This article explains everything you want to know about tax exemptions. 

Reasons You Still Need to File Your Tax Return 

Reasons You Still Need to File Your Tax Return 

Reasons You Still Need to File Your Tax Return. Here are some good reasons why you should file your tax return

How to Submit Provisional Tax to SARS

How to Submit Provisional Tax to SARS

This article will guide you through submitting your provisional tax return to SARS. 

How to Avoid Inheritance Tax in South Africa

How to Avoid Inheritance Tax in South Africa

This guide explores strategies for reducing or avoiding inheritance tax in South Africa, addresses whether beneficiaries pay tax on inheritances

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. 

How Is Bonus Tax Calculated In South Africa

How Is Bonus Tax Calculated In South Africa

How Is Bonus Tax Calculated In South Africa. Our aim is to illuminate the complexities of this system and provide clarity regarding the role of SARS.

IT12EI – Return of Income Tax Exempt Organisation

IT12EI – Return of Income Tax Exempt Organisation

This article explains the measures you can take to file your return of income for an organization(IT12EI ) that does not pay tax. 

Difference Between Tax Rebate and Tax Threshold?

Difference Between Tax Rebate and Tax Threshold?

Difference Between Tax Rebate and Tax Threshold? This article explains different concepts you should know about filing tax returns. 

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.

Is TAX Paid Monthly Or Yearly In South Africa?

Is TAX Paid Monthly Or Yearly In South Africa?

So, let’s raise a toast to understanding taxes - here’s to a prosperous journey in South Africa!

How Tax Rebate Is Calculated

How Tax Rebate Is Calculated

How Tax Rebate Is Calculated. In this extensive handbook, we will explore the realm of tax rebates in South Africa.

What is the Non-Taxable Income Limit in South Africa?

What is the Non-Taxable Income Limit in South Africa?

What is the Non-Taxable Income Limit in South Africa? Today we will be looking at that latter category in more detail.