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Chapter 8 - Labour Law

Workers and income tax

What is tax?

Tax is money that you pay to the government. The government uses money from taxes to pay for schools, roads, police, army and so on.

What is income tax?

Income tax is tax on your wages. If you earn more than a certain amount, then the employer must take tax money from your wages each time you get paid. If you get weekly wages, then you pay tax every week. If you get monthly wages, then you pay tax every month.

In 1988 the new system called SITE was introduced. SITE stands for Standard Income Tax on Employees. The employer must make sure that the correct tax is deducted from the worker's wages or salary, and that it is paid to the South African Revenue Services . The Receiver does not refund any overpayments.

SITE applies to any person who earns up to R60 000 a year (this amount changes every year).

Most workers fall under the SITE system. Their tax must be worked out by the employer.

How much tax do you pay?

This depends on:

1. How much you earn (including overtime or bonuses, and before deductions).
2. Your age (whether you are under 65 or over 65).
3. Whether you are a member of an officially recognised pension fund or pay towards a retirement annuity fund.

What information must you give to employers?

When you become employed you must fill in an IRP2 form. The tax deducted depends on the information that you fill in on this form.

If you are over 65 years old you must notify your employer. Also tell the employer if you pay towards a retirement annuity fund, because you will then pay less tax.

If you do not fill in an IRP2 form at all, the employer will tax you at the highest possible rate.

Deductions from SITE

The amount you pay into a pension scheme or a retirement annuity fund can be DEDUCTED from your wage before tax is calculated. This means you will pay less tax, because the tax is worked out on a lower income.

Under SITE only contributions to a pension fund or a retirement annuity fund can be deducted from the wage. Contributions to a Provident Fund cannot be deducted.

What rate of tax will you pay?

After the deduction for pension or a retirement annuity fund, the rest of your wage is taxed according to different rates. The rate you pay depends on how much you earn, and is calculated from tax tables issued by the South African Revenue Services .

Rebates

A rebate is an amount of money taken off the tax after your tax rate has been worked out. This means the tax you pay is lower. You can get different types of rebates. There is a primary rebate and an age rebate.

The primary rebate is deducted off the tax you owe. In March 1998 the primary rebate was R3 215.

The age rebate for people over 65 years is R2 500 in March 1998.

How to work out your tax

The offices of the South African Revenue Services  have tax tables from which tax is worked out. All employers are given tax tables and must use them to work out your tax.

Tax on bonus pay and retrenchment pay

Bonus pay is always added to the wage and then the whole amount is taxed. So the income that is taxed is higher than the normal wage, and the tax you pay will also be higher.

Tax is not paid on a retrenchment package of up to R30 000.

Part-time work and casual work

Part-time workers who work for less than 22 hours a week are taxed at a rate of 25% unless they declare to their employers that they have no other paid work. If they have no other paid work they are taxed in the same way as full time workers.

If a casual worker works for a full day then she or he must be taxed according to the daily tax tables. If the worker works for a morning or afternoon or evening, then the rate of tax is 25% of the wage.

Assessments

Once a year, your employer must issue you with an IRP5 tax certificate that shows the total wages that you earned and the total tax that was deducted.

If you earn less than R60 000 a year, you will not have to submit a tax return.

If you earn more than R60 000 a year the South African Revenue Services  assesses you when you fill in a 'tax return'. You fill in a tax return form and send it with the IRP5 to the South African Revenue Services .

Assessment means checking up on the tax you pay to make sure you haven't paid too much or too little tax.