The previous two blog posts I wrote, focused on kindness as an essential characteristic in the coming year, and the second on, how to deal with the predicted economic volatility during 2023. One article focused on external challenges and the other on challenges from within the organisation.
With the year now truly on the march (pardon the pun), and as we are about to start with the new financial year, I wanted to reflect on a matter which has been at the forefront of my thinking following numerous interactions with my clients, namely the issue of paying taxes.
For the past couple of months (from about the onset of the Covid pandemic) I have seen and experienced a noticeable unhappiness, and in some cases resistance, from many individuals and businesses about paying their due taxes. These indifferences can certainly be traced back to public outcries of corruption, failing SOE’s, and of late, the entire ESKOM debacle. The mood of the people and business landscape is negatively impacted by the constant wave of unprosecuted crimes, non-consequential dishonesty, theft and corruption.
But does the dishonest behavior of a number of high-profile politicians automatically give us permission to pay taxes on our own terms? I believe that this quickly turns into a slippery slope once we start to dictate the terms of our tax liabilities against the broad brushstroke of criminality of a few politicians, and here are three reasons I say so:
We are the sum total of our education, upbringing, and culture, none of which function in isolation. Each generation builds on the efforts of the previous one and so we create a country and its people. Without our taxes our government is not able to provide the fertile soil in which to cultivate these essential building blocks. These services include building roads and schools, offering refuse removal and sanitation, providing clean drinking water, ensuring electrical supply and infrastructure, and many other essential services which cannot be economically provided on an individual basis.
We are fortunate that in the Western Cape we possess many well-run municipalities, and emergency services and repairs are usually quick to respond. While there is undoubtably an immense service delivery problem across the country, our government still need our taxes to effectively run the country.
A close friend reminded me the other day that there are also honorable and hardworking individuals in government and municipal offices. We are quick to think that there is a justifiable trade-off between our long list of problems and personal frustrations, and not having to pay taxes. But the two sides do not belong to the same coin, and while we can indeed demand better service levels, we still need to maintain the moral high ground and continue to pay our taxes as law abiding citizens, lest we want to aid in our own regression into anarchy.
It doesn’t matter how you look at your tax liabilities – the house, so to speak, always wins! I am simply saying that, despite the many SOE’s and government departments that are not well run, SARS, for some reason remains a competent organisation when it pertains to their ability to audit tax irregularities and to institute hefty penalties for non-paying entities. The short-term gain of not paying your taxes is simply not worth the long-term pain you inflict on yourself. With the adoption of the “pay-now-argue-later” principal SARS has the upper hand. Pay your taxes when they are due, you will thank yourself later. This leads me to my next point;
The South African tax legislation landscape is a complex one, but it also makes a number of concessions which you should use to your benefit. To make full use of these concessions you require a detailed understanding of the law, accounting principles and how to structure your portfolio of business, assets, and wealth in such a way to ensure optimal tax benefits within the law. While tax avoidance is completely acceptable, tax evasion is not, and will guarantee hefty penalties or even jail time.
Further to the above, it is also vital that you make use of registered tax professionals who can guide and advise you on the best practices and options for you to follow within your business and personal tax liabilities. I cannot stress this point enough. We often have to take over clients and resolve the mess that was left behind by some so-called tax consultant (usually a personal friend or varsity buddy). Do yourself a favor and make sure your tax specialist is qualified and registered with the appropriate authorities.
Not paying our taxes is just not a viable option, especially in a country such as ours where we have such huge divide between the rich and poor. And no, I am not getting any special benefits by advocating that you pay your taxes, I am simply a citizen of South Africa and I believe in this country’s future.
On 09 February 2023 the President delivered his State of the Nation Address (SONA) followed by Finance Minister Enoch Godongwana delivering his 2023 Budget Speech on 22 February 2023. I have highlighted a selection of some of the main issues discussed under his Revenue and Tax Proposals discussion namely:
• Tax revenue collections for 2022/2023 are expected to total R1.69 trillion. This exceeds the 2022 budget estimate by R93.7 billion.
• As a result, there are no major tax proposals in the budget.
• The fuel levy and Road Accident Fund levy will not be increased this year. This will take effect from 1 April 2023 for two years.
• Personal income tax brackets will be adjusted for inflation, which will increase the tax-free threshold from R91 250 to R95 750.
• Medical tax credits will also be adjusted by inflation to R364 per month for the first two members and R246 per month for additional members.
• The retirement and withdrawal lump sum tax table will be adjusted upwards by 10%. This means that at retirement or retrenchment, the once-off tax-free amount will increase to R550 000.
• Transfer duty will be increased by 10%, allowing properties valued under R1.1 million to avoid any transfer duty payments.
• The government intends to publish a revised draft legislation on the two-pot retirement system.
• The two-pot system will be implemented from 1 March 2024 and any withdrawals from the accessible “savings pot” will be taxed as income in the year of withdrawal.
• There will be an increase in the excise duties on alcohol and tobacco of 4.90% which is in line with inflation. This means that the duty on:
o 340ml can of beer increases by 10 cents.
o 750ml bottle of wine increases by 18 cents.
o 750ml bottle of spirits increases by R3.90.
o 23g cigar increases by R5.47.
o A pack of 20 cigarettes increases by 98 cents.
I never enjoy making calls to clients to inform them of a large tax payment they need to make; especially when a client’s portfolio is still in the midst of being re-aligned, corrected or in the process of being optimized. Conversely there is also no greater joy than to call a client and to notify them of an upcoming tax payout.
From an annualized perspective it makes sense to study the tax legislation and to put in the hard miles required to create an optimal tax structure. This requires cost effective budgeting, financial discipline, and administrative controls, but once those systems are in place, there are definitely tangible benefits, but it requires ongoing review and professional tax consultation.
Next time you have to settle a tax related payment, keep in mind that we all are working towards the success of our country and to the benefit of our own and the of our children’s future. While the benefits are not always so evident, every tax rand is precious and important. Let’s be the change we want to see in our country and the world.
With the year now truly on the march (pardon the pun), and as we are about to start with the new financial year, I wanted to reflect on a matter which has been at the forefront of my thinking following numerous interactions with my clients, namely the issue of paying taxes.
For the past couple of months (from about the onset of the Covid pandemic) I have seen and experienced a noticeable unhappiness, and in some cases resistance, from many individuals and businesses about paying their due taxes. These indifferences can certainly be traced back to public outcries of corruption, failing SOE’s, and of late, the entire ESKOM debacle. The mood of the people and business landscape is negatively impacted by the constant wave of unprosecuted crimes, non-consequential dishonesty, theft and corruption.
But does the dishonest behavior of a number of high-profile politicians automatically give us permission to pay taxes on our own terms? I believe that this quickly turns into a slippery slope once we start to dictate the terms of our tax liabilities against the broad brushstroke of criminality of a few politicians, and here are three reasons I say so:
Paying Taxes is How We Build Societies
We are the sum total of our education, upbringing, and culture, none of which function in isolation. Each generation builds on the efforts of the previous one and so we create a country and its people. Without our taxes our government is not able to provide the fertile soil in which to cultivate these essential building blocks. These services include building roads and schools, offering refuse removal and sanitation, providing clean drinking water, ensuring electrical supply and infrastructure, and many other essential services which cannot be economically provided on an individual basis.
We are fortunate that in the Western Cape we possess many well-run municipalities, and emergency services and repairs are usually quick to respond. While there is undoubtably an immense service delivery problem across the country, our government still need our taxes to effectively run the country.
A close friend reminded me the other day that there are also honorable and hardworking individuals in government and municipal offices. We are quick to think that there is a justifiable trade-off between our long list of problems and personal frustrations, and not having to pay taxes. But the two sides do not belong to the same coin, and while we can indeed demand better service levels, we still need to maintain the moral high ground and continue to pay our taxes as law abiding citizens, lest we want to aid in our own regression into anarchy.
All Criminal Acts are Punishable by Law
It doesn’t matter how you look at your tax liabilities – the house, so to speak, always wins! I am simply saying that, despite the many SOE’s and government departments that are not well run, SARS, for some reason remains a competent organisation when it pertains to their ability to audit tax irregularities and to institute hefty penalties for non-paying entities. The short-term gain of not paying your taxes is simply not worth the long-term pain you inflict on yourself. With the adoption of the “pay-now-argue-later” principal SARS has the upper hand. Pay your taxes when they are due, you will thank yourself later. This leads me to my next point;
Tax Avoidance Vs Tax Evasion
The South African tax legislation landscape is a complex one, but it also makes a number of concessions which you should use to your benefit. To make full use of these concessions you require a detailed understanding of the law, accounting principles and how to structure your portfolio of business, assets, and wealth in such a way to ensure optimal tax benefits within the law. While tax avoidance is completely acceptable, tax evasion is not, and will guarantee hefty penalties or even jail time.
Further to the above, it is also vital that you make use of registered tax professionals who can guide and advise you on the best practices and options for you to follow within your business and personal tax liabilities. I cannot stress this point enough. We often have to take over clients and resolve the mess that was left behind by some so-called tax consultant (usually a personal friend or varsity buddy). Do yourself a favor and make sure your tax specialist is qualified and registered with the appropriate authorities.
Not paying our taxes is just not a viable option, especially in a country such as ours where we have such huge divide between the rich and poor. And no, I am not getting any special benefits by advocating that you pay your taxes, I am simply a citizen of South Africa and I believe in this country’s future.
2023 Budget Speech
On 09 February 2023 the President delivered his State of the Nation Address (SONA) followed by Finance Minister Enoch Godongwana delivering his 2023 Budget Speech on 22 February 2023. I have highlighted a selection of some of the main issues discussed under his Revenue and Tax Proposals discussion namely:
• Tax revenue collections for 2022/2023 are expected to total R1.69 trillion. This exceeds the 2022 budget estimate by R93.7 billion.
• As a result, there are no major tax proposals in the budget.
• The fuel levy and Road Accident Fund levy will not be increased this year. This will take effect from 1 April 2023 for two years.
• Personal income tax brackets will be adjusted for inflation, which will increase the tax-free threshold from R91 250 to R95 750.
• Medical tax credits will also be adjusted by inflation to R364 per month for the first two members and R246 per month for additional members.
• The retirement and withdrawal lump sum tax table will be adjusted upwards by 10%. This means that at retirement or retrenchment, the once-off tax-free amount will increase to R550 000.
• Transfer duty will be increased by 10%, allowing properties valued under R1.1 million to avoid any transfer duty payments.
• The government intends to publish a revised draft legislation on the two-pot retirement system.
• The two-pot system will be implemented from 1 March 2024 and any withdrawals from the accessible “savings pot” will be taxed as income in the year of withdrawal.
• There will be an increase in the excise duties on alcohol and tobacco of 4.90% which is in line with inflation. This means that the duty on:
o 340ml can of beer increases by 10 cents.
o 750ml bottle of wine increases by 18 cents.
o 750ml bottle of spirits increases by R3.90.
o 23g cigar increases by R5.47.
o A pack of 20 cigarettes increases by 98 cents.
Conclusion
I never enjoy making calls to clients to inform them of a large tax payment they need to make; especially when a client’s portfolio is still in the midst of being re-aligned, corrected or in the process of being optimized. Conversely there is also no greater joy than to call a client and to notify them of an upcoming tax payout.
From an annualized perspective it makes sense to study the tax legislation and to put in the hard miles required to create an optimal tax structure. This requires cost effective budgeting, financial discipline, and administrative controls, but once those systems are in place, there are definitely tangible benefits, but it requires ongoing review and professional tax consultation.
Next time you have to settle a tax related payment, keep in mind that we all are working towards the success of our country and to the benefit of our own and the of our children’s future. While the benefits are not always so evident, every tax rand is precious and important. Let’s be the change we want to see in our country and the world.