Paying the taxman

by CNBC Africa 0

Paul Leonard | Citadel

Tax season – the period during which you are required to submit your annual income tax return – started on 1 July and is now in full swing so I thought it would be interesting to look at how long we work for the taxman in South Africa, metaphorically speaking.

If we assume that you do not work on weekends or on public holidays then you have 250 work days for which you will be paid this year. For this illustration I have ignored your annual leave – you are paid for those days of leave anyway, so I just kept them in as part of the 250 work days you have.

The tax threshold is R75,750/year for people below age 65 this year, which is just above R6,300/month. This means that anyone earning R6,300 a month or less will pay no tax and they don’t spend any time working for the government.

If you earn R10,000 per month, or R120,000 this year, then you will pay R7,900 (the tax figures in this article have been rounded) in tax this year and 17 of your working days, in other words up until the 24th of January will have been spent working to pay tax to the government. Since then you have been working for yourself.

At an income of R25,000 per month or R300,000 this year you will spend 41 of your work days working to pay just short of R50,000 in tax.

If you earn R50,000 per month or R600,000 this year you will pay just over R153,000 in tax and it will have taken you 64 of your working days, in other words until Friday the 31st of March to pay your income tax.

If you earn a R100,000 per month then you will spend 83 of your 250 working days this year to pay just short of R400,000 (R396,990) in income tax and it will have taken you until Wednesday the 3rd of May this year to do so.

Just for interest sake, if you earn between R1,14 million and R4 million this year you will have completed your tax days sometime in May. People earning more than R4 million in taxable income this year will spend at least 103 of their 250 working days to pay income tax and will have finished working to pay their taxes in the first two weeks of last month. By the 14th of June everyone, including those with ultra-high incomes will have finished working to pay income tax.

You can reduce your number of tax working days by contributing to retirement funds

If, for example, if you earn R50,000/month you will have 64 tax working days, but if you put 15% of your taxable income into a retirement fund, like a retirement annuity, then you will reduce your tax days from 64 to 50 tax days. That is a reduction of 14 working days. Remember that does not include weekends, so it actually means a reduction of almost 3 weeks. To put it differently, in this example, contributing 15% to a retirement annuity amazingly reduces your tax work days by 22% because you have reduced your income tax by 22%.

You are currently able to contribute 27,5% of your taxable income towards a retirement annuity. Remember that this is limited to R350,000 for the year. If you earned R50,000/month and your retirement contribution was 27,5% then you would reduce your tax work days down to 39. So instead of working for the tax man until the 31st of March you would have finished working for the taxman by the 23rd of February this year.

This is a great example of where it is valuable to pay yourself first using retirement funds – as this case shows if you earn R50,000/month you could cut the amount of time you spend working for the taxman by a whole month.

Table 1: Tax work days and the saving generated by contributing to RAs

Taxable Income Tax work days* Tax Free Date§
RA Contribution RA Contribution
pm  pa 0% 15% 27.5% 0% 15% 27.5%
R 10,000  R 120,000 17 10 4 24-Jan 13-Jan 6-Jan
R 20,000  R 240,000 35 25 18 17-Feb 6-Feb 26-Jan
R 30,000  R 360,000 47 36 27 8-Mar 20-Feb 8-Feb
R 40,000  R 480,000 57 43 33 22-Mar 2-Mar 16-Feb
R 50,000  R 600,000 64 50 39 31-Mar 10-Mar 23-Feb
R 60,000  R 720,000 70 55 43 10-Apr 17-Mar 1-Mar
R 80,000  R 960,000 78 62 50 24-Apr 30-Mar 10-Mar
R 100,000  R 1,200,000 83 67 55 3-May 6-Apr 17-Mar
R 150,000  R 1,800,000 91 74 69** 15-May 19-Apr 10-Apr**
R 200,000  R 2,400,000 96 80** 80** 23-May 26-Apr** 26-Apr**
R 250,000  R 3,000,000 100 86** 86** 26-May 9-May** 9-May**

Notes:                                                                                                                   

2017/18 tax tables for a tax payer below age 65                                                  

* Work Days exclude weekends and public holidays (2017 calendar year)               

** Maximum contribution of R350,000 pa has been reached                        

§ Tax Free date is the last day on which tax is paid

Source: Citadel