2. • Define the comprehensive income tax base
• Discuss the international principles of taxing income
• Discuss the reasons why the personal income tax
base differs from the comprehensive income tax base
• Explain what a progressive personal income tax is
and how progressiveness is achieved
• Discuss the economic effects of personal income tax
• Explain why companies are taxed separately
• Define the company tax base
• Describe the classical and fully integrated company
tax systems.

3. • Describe company tax in South Africa
• Explain the efficiency of company tax
• Discuss the importance of company tax in the
investment decision
• Discuss the merits of tax incentives for investment
• Explain the equity implications of company tax
• Discuss the arguments for and against capital gains
taxation
• Explain a flat rate income tax
• Explain the dual income tax.

4. Three bases
• Income
• Wealth
• Consumption
Income
•
• Anything that makes consumption possible
• Recorded as accrued, not when realised.

5. 2 principles
• Residence of taxpayer
– Country where person lives receives tax
• Source of income
– Country where income is generated receives tax
Issues facing developing countries
• Source basis resembles benefit principle
• Tax system should not influence locational decisions.

6. • Gross income
• Exempt income
• Net income
• Taxable income
• Tax expenditures
– Exclusions
– Exemptions
– Deductions
– Rebates/credits.

7. TOTAL (COMPREHENSIVE) INCOME
minus Exclusions (eg imputed rent & unrealised capital gains)
GROSS (CASH) INCOME
minus Exemptions (eg tax-free portion of interest)
NET INCOME
minus Deductions (eg contributions to medical scheme)
TAXABLE INCOME
Tax according to tables
GROSS TAX LIABILITY
minus Rebates (primary rebate and rebate for age 65 and over)
NET TAX LIABILITY

8. • Unit of taxation/filing status
• Consider:
– Single vs married vs family with children
– One partner vs two earning an income
• Equal marginal sacrifice principle
• Progressivity
• Marginal tax rates.

12. Equity
• Sensitivity of labour supply to price and tax
Administrative efficiency
• Simplicity
• Presumptive taxation
• Laffer curve.

14. • Bracket creep
• Real income
• Nominal income.

15. Reasons for taxing companies
• Separate entities
• Recipients of benefits from government
• Ability to limit personal income tax liability
• Address market failures through taxing excessive
profits of imperfectly competitive firms
• Administratively simple
• Derive revenue that would otherwise accrue to
foreign investors.

16. The company tax base
• Incorporated
– Private and public
• Unincorporated
– Sole proprietorships and partnerships
• Mining
Taxable income
• Total receipts (revenue) – Allowable expenses
(costs).

17. • Classical system
– Double taxation
• Full integration system
• Dual tax rate – basic tax on companies
• Proportional tax
• Secondary tax (STC).

18. • Real & financial cash-flow tax base equals [(sales +
borrowing + interest received) – (real purchases +
interest payments + debt repayment)]
• Advantages
– Simple definition
– Neutral
• Shortcomings
– Windfall tax revenue gains/losses
– Full & immediate expensing
– Base shifting
– International taxation
– Administration?

19. • Economic efficiency
• Investment
– Decision to invest
– Non-tax factors
– Tax incentives
– Tax holidays.

20. • Incentives for market failures
• Compensation for regulatory
distortions
• Addressing labour market
distortions
• Constraints in capital markets
• Temporary investment
incentives for infant industries
• External benefits (innovation)
• Signal for foreign investors.
• Administration
• Erosion of tax base
(necessitating higher tax rates)
• Pressure group action
• Uneven tax burden
• Less successful in attracting
foreign investment
• Windfall gains would have
taken place anyway
• Obstacles to investment better
address directly.

21. • As accrue vs as realised
• Change in ownership of an asset
• Capital losses
• First R20,000.00 excluded
• Exemptions.
Capital gains can be defined as increases in the net value of assets over a
period (e.g. an accounting period or €fiscal year).

22. • Protect integrity of personal
income tax base
• Ensure horizontal equity
• Ensure vertical equity
• Improve economic efficiency.
• Administrative challenges
• If nominal profits are taxed,
equity is at risk
• Lock in rather than realise
investments.

23. • Flat rate income tax
• Duel income tax
– Personal capital income separately taxed from labour
income
– Labour income
– Company income
– Nordic countries.

24. • Impact of globalisation and
international mobility of capital
• Efficiency
• Administration.
• Splitting of income (capital &
labour)
• Lack of responsiveness to
international competition
• Vertical inequity.