Johnny is born. Johnny is not a taxpayer yet… but he will be.
Johnny’s parents need to buy him wet wipes, vests, a cot, a pram and a car seat. Unbeknownst to Johnny, his parents just paid VAT. This used to be 14%. It’s been 15% since 1 April 2018. VAT is levied on almost everything (Rule of thumb: If you paid for it, it probably has VAT on it). Sure, there are zero rated items like nappies, white flour and sanitary products, but the list is short.
To bag all the stuff Johnny’s parents bought, they got plastic bags. There’s a tax on that.
Johnny likes watching Peppa Pig on the tablet while his parents catch up on Morning Live on the TV. They must pay their TV Licence (and they paid VAT when they bought the TV). If the SABC gets their way, Johnny’s Peppa Pig on Netflix will also have to pay a TV License soon!
A growing boy needs to go to school. Education is an exempt supply – no VAT… but guess what! Johnny’s parents need to drive him to school. Driving introduces several more taxes… License disc fees, driver’s license renewals, fuel taxes, tyre levies, Road Accident Fund payments, eTolls, toll gate fees, CO2 taxes… and more.
Johnny’s parents like to relax on weekends due to the stress of parenthood. Dad drinks beer and mom likes to vape. There’s no “vape tax” yet… but there will be. Dad pays Excise duty on his beer, (and also VAT). They also enjoy coke (the boring liquid one, not the fun dry one), especially with their KFC Fridays. There’s a tax on that. Health Promotion Levy on Sugary Beverages.
Once a year, the family goes on an overseas trip. There’s a tax on that. Air Passenger Tax. Mom buys Johnny an imported pair of sneakers. Import duty, Ad Valorem tax (and VAT).
Right now, you are probably thinking to yourself… what the hell?
But wait there’s more.
Johnny is not a taxpayer yet. Johnny must become economically active and earn his own money after he leaves school.
He gets a job as a programmer. First payslip arrives. He was going to get R30k a month, but his net salary is only R24k. What happened to the other R6k? PAYE, UIF and SDL. PAYE being your employment tax, UIF for the Unemployment Insurance Fund and SDL for Skills Development Levy. The PAYE he pays is part of his Personal Income Tax.
But let’s take this a step further. That first month he spoils himself as it’s his first salary. He buys himself the PS5, borrowing some money from his parents and funding the rest of the cost himself, and by the end, getting close to the next pay day, he’s out of cash. Three days left of the month, but no money. Too much month, too little money – we’ve all been there.
So what does this have to do with taxes?
Income Tax + SDL + UIF: R 6,000
Municipal rates and levies: R 2,000
Tax and fuel levy: R 700
Sin taxes: R 250 (on alcohol & cigarettes)
VAT on spending: R 2,100
PS5 added costs: R 1,100
(The numbers are assumptions… I mean surely by now Johnny has a more serious alcohol problem)
Our dear Johnny paid, directly and indirectly, a total of R 12,150 in taxes. Effectively, he thinks he’s only paying 20% personal income tax… but his total tax to the SA government is almost 41% of his gross salary!
Several years later, he decides to start a company. Johnny’s Computers. The company does well. Financial statements are drawn up, and the company must pay Corporate Income Tax, which is reduced by Provisional Tax. Oh, and the company must register for VAT. Now the company is collecting VAT from consumers like you and me. To get the money out of the company, he pays himself dividends. Dividends Tax.
Johnny’s Computers is a benevolent entity and decides to donate 50k to a friend’s struggling company. They have to pay Donations Tax.
His parents are getting old and they are nearing the end of their lives. Johnny is sad. There is unfortunately no tax planning done for Johnny’s parents and now they have to pay lots of Estate duty. Johnny inherited his parent’s house. There’s no tax on that. He decides to sell the house. There’s a tax on that. That’s called Capital Gains Tax.
Johnny’s accountant didn’t know about Turnover Tax. Don’t worry. Government has also been ignoring it since they’ve implemented it. It could have saved Johnny’s company a lot in taxes, especially in the first few years.
Johnny became a Streamer on Twitch, met his wife on the platform and got married… they decided to adopt a kid. Johnny is an Arsenal fan (he pays emotional tax).
As South African citizens, the moment we become economically active we pay tax both directly and indirectly. The idea that only wealthy people pay tax is flawed – we’re all involved in generating tax revenue.
Tax awareness is absolutely critical for a number of reasons. Firstly, it helps identify the deductions available to us, reduce our tax bill & leave us with a bit more at the end of the month. It also allows us to structure our savings and investments in a way that preserves and grows capital. Most importantly, knowing how much tax you pay and where tax is charged increases awareness of where our money is going and acts as a catalyst for accountability when it comes to use of tax proceeds. If over 41% of your gross income is being carved out to taxes, you take a strong interest in where the money is going. Everyone needs to play their part when it comes to tax.
Tax is a two-sided coin which requires both the government and the taxpayer to play their respective parts. Right now the taxpayer desperately needs the government to play its part.