VULA MATHEMATICAL LITERACY

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					                                                                                            Topic 1 – Income Tax

                                 VULA MATHEMATICAL LITERACY

                                     EXAM REVISION TOPICS


TOPIC 1: INCOME TAX

Income tax:
Every person who earns an income or salary has to pay tax on their income to the South
African Government. This tax is calculated using a sliding scale – this means that the more
you earn the more tax you have to pay.

Below is one of Solly’s salary slips. A salary slip is issued by an employer to an employee outlining
the employee’s salary and any other income or deductions that must be added to or subtracted from
the salary. In the case of Solly, his employer – High Rise Bakery − provides him with the following
salary slip to outline his salary and the deductions taken off his salary every month.

                                        High Rise Bakery
                                                                                          Pay Date:
                                                                                          25 March

     Employee Name:                     Occupation:                       ID No:
     Solly van Heerden                  Specialist Baker                  761106912024

     Address:                           Bank Account No:                  Tax No:
     Flat 3C Ladswood Heights           1745193208                        ZA123718


             Incomes                 Amount                      Deductions            Amount
       Basic Salary                      R10 090,00        Income Tax                      R1 126,20

                                                           Medical Aid                       R772,00

                                                           Pension                           R415,00

                                                           UIF                               R100,90

           Gross Income                R10 090,00          Total Deductions               R2 414,10


                                                                      Net Pay            R7 675,90

                                            Have a nice day! 




All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   1
Literacy (Cape Town, 2007).
                                                                                            Topic 1 – Income Tax

Questions:
1.
      a.          Show how the Total Deductions value of R2 414,10 was calculated. (TL 1)

        b.        Gross Income refers to an individual’s earnings before any deductions are taken off.
                  Net Pay refers to the actual amount of money the person will receive in their bank
                  account once all deductions have been taken off. Show how the Net Pay value of
                  R7 675,90 was calculated. (TL 1)

        c.        UIF (Unemployment Insurance Fund) is calculated at 1% of the individual’s Gross
                  Income. Has the UIF value on Solly’s salary slip been calculated correctly? Explain
                  your answer. (TL 2)

        d.        What percentage of Solly’s Gross Income goes towards Income Tax?
                  If necessary, round off your answer to one decimal place. (TL 2)

2.      The table below shows the income tax brackets for the 2008/2009 financial year.
        (Source: South African Revenue Service (2008), Tax Pocket Guide 2008/2009, p.1)

                                      Income Tax Brackets 2008/2009

             Income Tax for Individuals
                Tax
                         Taxable Income (R)             Rates of Tax (R)
              Bracket
                 1       0 – 122 000                    18% of each R1
                 2       122 001 – 195 000              21 960 + 25% of the amount above 122 000
                 3       195 001 – 270 000              40 210 + 30% of the amount above 195 000
                 4       270 000 – 380 000              62 710 + 35% of the amount above 270 000
                 5       380 001 – 490 000              101 210 + 38% of the amount above 380 000
                 6       490 001 and above              143 010 + 40% of the amount above 490 000

             Tax Rebates
             Rebates                                R
             Primary                                8 280
             Additional (Persons 65 and older)      5 040

             Tax Threshold
             Age                                    Tax Threshold (R)
             Below age 65                           46 000
             Age 65 and over                        74 000



        a.
                  i.      Into which tax bracket does a person who earns R132 520,00 per year fall?
                          (TL 1)

                  ii.     Into which tax bracket does a person who earns R17 100,00 per month fall?
                          (TL 1)

                  iii.    What tax rebate will a 52 year old person receive? (TL 1)

                  iv.     How old do you have to be to qualify for the R74 000,00 tax threshold?
                          (TL 1)
All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   2
Literacy (Cape Town, 2007).
                                                                                            Topic 1 – Income Tax


        b.       To help taxpayers to calculate their monthly tax, the South African Revenue Service
                 provides the following guideline for calculating income tax on a salary:

                                           Calculating Income Tax Guideline

                         Nomkhosi is 38 years old and earns R12 250,00 per month.
                         → Yearly Income = R147 000,00 (tax bracket 2)

                         Yearly tax = R21 960,00 + 25% × (R147 000,00 − R122 000,00)
                                     = R21 960,00 + 25% × (R25 000,00)
                                     = R21 960,00 + R6 250,00
                                     = R28 210,00

                         Actual tax payable per year = R28 210,00 − R8 280,00 (rebate)
                                                     = R19 930,00
                                                     = R1 660,83 per month



                 Use Income Tax tables for the 2008/2009 financial year and the SARS guideline
                 above to calculate the monthly tax payable on the following salaries: (TL 3)

                 i.      25 year old person who earns a salary of R7 000,00 per month.
                 ii.     50 year old person who earns a salary of R150 000,00 per year.
                 ii.     43 year old person who earns R17 200,00 per month.
                 iv.     66 year old person who earns R9 500,00 per month.

        c.       The “Tax Threshold” refers to the maximum amount of money that a person can earn
                 per year and not have to pay any tax. Show how the tax threshold value of
                 R46 000,00 was calculated. (TL 4)

        d.       If Solly is 31 years old, show how the Income Tax value of R1 126,20 on Solly’s
                 Salary Slip was calculated. (TL 3)

        e.       If Solly is given a 13th at the end of every year, how will this affect the total amount
                 of tax that he has to pay on his salary. (TL 3)

        f.       If Solly is given a 8% increase on his gross salary, how much of the increase will he
                 actually receive after tax every month? (For this question, ignore the 13th cheque and
                 work with 12 salary payments for the year.) (TL 3)




All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   3
Literacy (Cape Town, 2007).
                                                                                                                               Topic 1 – Income Tax

                      3.           The table below shows the income tax brackets and rebates for the 2007/2008 financial year.

                                             Income Tax for Individuals 2007/2008
                                              Tax Bracket     Taxable Income (Rand)                        Rate of Tax
                                                   1         0 – 112 500                18% of each R1
                                                   2         112 501 – 180 000          R20 250 + 25% of the amount above R112 500
                                                   3         180 001 – 250 000          R37 125 + 30% of the amount above R180 000
                                                   4         250 001 – 350 000          R58 125 + 35% of the amount above R250 000
                                                   5         350 001 – 450 000          R93 125 + 38% of the amount above R350 000
                                                   6         450 001+                   R131 125 + 40% of the amount above R450 000

                                             Tax Rebates
                                             Rebate                                    R
                                             Primary                                   R7 740
                                             Additional (Persons 65 years and older)   R4 680

                                             Without doing any calculations, explain whether tax payers are paying more or less
                                             tax in 2008/2009 than they were in 2007/2008 (assuming their salaries have stayed
                                             the same). (TL 4)

                      4.           The graph below shows a comparison between the income tax payable on various salaries
                                   (for people under 65 years old) in the 2006/2007, 2007/2008 and 2008/2009 financial years.

                                        Monthly Income Tax Payable on Various Yearly Salaries - 2007/2008 and 2008/2009 Compared

                       R 9 000
                       R 8 500                                                                                       2006/2007
                       R 8 000                                                                                       2007/2008
                       R 7 500                                                                                       2008/2009
                       R 7 000
                       R 6 500
Monthly Tax Payable




                       R 6 000
                       R 5 500
                       R 5 000
                       R 4 500
                       R 4 000
                       R 3 500
                       R 3 000
                       R 2 500
                       R 2 000
                       R 1 500
                       R 1 000
                           R 500
                             R0
                               R0              R 50 000     R 100 000      R 150 000    R 200 000      R 250 000   R 300 000     R 350 000   R 400 000

                                                                                       Yearly Salary


                                   a.        Explain why the graphs do not start at R0,00 on the horizontal axis. (TL 4)

                               b.            Approximately how much less tax will a person who earns R270 000,00 per year be
                                             paying per month in 2008/2009 than in 2006/2007 (assuming their income remained
                                             the same). (TL 3)


                      All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical               4
                      Literacy (Cape Town, 2007).
                                                                                            Topic 1 – Income Tax

        c.
                 i.       Describe the trend/changes in the amount of tax that taxpayers have been
                          taxed on their income since 2006/2007. (TL 4)

                  ii.     Why do you think there is this trend in the amount of tax that taxpayers have
                          had to pay on their income since 2006/2007? (TL 4)

5.      The table below shows a comparison of the income tax payable on various salaries in the
        2005/2006 and 2006/2007 financial years.

                         Annual          2005/2006         2006/2007          Reduction in
                         Income         Tax Payable       Tax Payable         Tax Payable
                           R 40 000           R 900                 R0               R 900
                           R 50 000         R 2 700             R 1 800              R 900
                           R 60 000         R 4 500             R 3 600              R 900
                           R 70 000         R 6 300             R 5 400              R 900
                           R 80 000         R 8 100             R 7 200              R 900
                         R 100 000         R 13 100            R 10 800            R 2 300
                         R 150 000         R 26 600            R 23 300            R 3 300
                         R 250 000         R 60 700            R 54 300            R 6 400
                         R 500 000        R 159 700           R 149 800            R 9 900

        a.       By how much was the amount of tax payable reduced on a R80 000,00 salary?
                 (TL 1)

        b.       Show how the Reduction in Tax Payable value of R2 300,00 was calculated.
                 (TL 2)

        c.       Who do you think benefited the most from the tax reductions between 2005/2006
                 and 2006/2007. Explain your answer by referring to the values in the table. (TL 2)

         d.      Calculate the percentage decrease in the amount of tax payable on the following
                 salaries: (TL 2)
                          R40 000,00
                          R100 000,00
                          R250 000,00
                          R500 000,00
                 If necessary, round off all answer to one decimal place.

        e.        Compare your answer in (3) to your answer in (2). Does your answer in (3) backup
                  your answer in (ii) or does contradict your answer? Explain.
                 (TL 4)




All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   5
Literacy (Cape Town, 2007).
                                                                                            Topic 1 – Income Tax

SOLUTIONS:

1.
        a.       Total deductions = Income Tax + Medical Aid + Pension + UIF
                                  = R2 414,10

        b.       Net Pay = Gross Income − Total Deductions
                         = R10 090,00 − R2 414,10 
                         = R7 675,90 

        c.       UIF = 1% × R10 090,00
                         1
                     =      × R10 090,00 
                        100
                     = R100,90 

                 Yes, the UIF value has been calculated correctly.

        d.       % of salary towards income tax = (income tax ÷ gross income) × 100
                                                = (R1 126,20 ÷ R10 090,00)  × 100
                                                = 11,2%
                                                (rounded off to one decimal place)

2.
        a.
                 i.      Tax bracket 2 

                 ii.     R17 100,00 per month = R205 200,00 per year
                                             = Tax bracket 3

                 iii.    Primary rebate of R8 280,00

                 iv.     65 years or older

        b.
                 i.      Yearly Income = R7 000,00 × 12 = R84 000,00 (tax bracket 1) 

                         Yearly tax = 18% × R84 000,00
                                    = R15 120,00

                         Actual tax payable / year = R15 120,00 − R8 280,00 (primary rebate)
                                                   = R6 840,00
                                                   = R750,00 per month




All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   6
Literacy (Cape Town, 2007).
                                                                                            Topic 1 – Income Tax

                 ii.     Yearly Income = R150 000,00 (tax bracket 2) 

                         Yearly tax = R21 960,00 + 25% × (R150 000,00 − R122 000,00)
                                    = R21 960,00 + 25% × (R28 000,00)
                                    = R21 960,00 + R7 000,00
                                    = R28 960,00

                         Actual tax payable / year = R28 960,00 − R8 280,00 (primary rebate)
                                                   = R20 680,00
                                                   = R1 723,33 per month

                 iii.    Yearly Income = R17 200,00 × 12 = R206 400,00 (tax bracket 3) 

                         Yearly tax = R40 210,00 + 30% × (R206 400,00 − R195 000,00)
                                    = R40 210,00 + 30% × (R11 400,00)
                                    = R40 210,00 + R3 420,00
                                    = R43 630,00

                         Actual tax payable / year = R43 630,00 − R8 280,00 (primary rebate)
                                                   = R35 350,00
                                                   = R2 945,83 per month

                 iv.     Yearly Income = R9 500,00 × 12 = R114 000,00 (tax bracket 1) 

                         Yearly tax = 18% × R114 000,00
                                    = R20 520,00

                         Actual tax payable per year =
                                R20 520,00 − R8 280,00 (primary) − R5 040,00 (additional)
                                                  = R7 200,00
                                                  = R600,00 per month

        c.       In order to qualify to not have to pay any tax, your annual tax payable must be less
                 than or equal to the rebate value. i.e. If the tax that you have to pay is less than or
                 equal to the rebate, then the rebate will cancel out the tax.
                 Also, to qualify to not have to pay tax means that you will be earning a salary that
                 falls into Tax Bracket 1.

                 If the tax that you pay is equal to the rebate, then:
                 Annual tax = 18% × salary
                 R8 280 (rebate) = 18% × salary
                 R8 280 = 0,18 × salary
                 (R8 280 ÷ 0,18)  = salary
                 → salary = R44 000,00

                 So, if you earn a salary of R44 000,00 then your annual tax will be R8 280,00, which
                 is the same as the tax rebate.
                  To qualify for not having to pay tax you must earn less than or equal to
                 R40 000,00 per year.


All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   7
Literacy (Cape Town, 2007).
                                                                                            Topic 1 – Income Tax

        d.       Solly’s monthly income = R10 090,00
                 → Annual income = R10 090 × 12 = R121 080,00 (tax bracket 1) 

                 Annual tax = 18% × R121 080,00
                          = R21 794,40

                 Actual tax payable per year = R21 794,40 − R8 280 (primary rebate)
                                            = R13 514,40
                                            = R1 126,20 per month

        e.       Annual income without 13th cheque = R10 090,00 × 12 = R121 080,00
                 Annual income with 13th cheque = R121 080,00 + R10 090,00
                                               = R131 170,00 (tax bracket 2) 

                 Yearly tax = R21 960,00 + 25% × (R131 170,00 − R122 000,00)
                            = R21 960,00 + 25% × R9 170,00
                            = R21 960,00 + R2 292,50
                            = R24 252,50

                 Actual tax payable per year = R24 252,50 − R8 280,00 (primary rebate)
                                          = R15 972,50

                 So, receiving a 13th cheque will mean that Solly will pay back
                 R15 972,50 − R13 514,40 = R2 458,10 more tax during the year.

        f.       Old salary = R10 090,00 per month
                 New salary = R10 090,00 + 8% × R10 090,00
                            = R10 090,00 + R807,20
                            = R10 897,20

                 New annual salary = R10 897,20 × 12 = R130 766,40 (tax bracket 2) 

                 Yearly tax = R21 960,00 + 25% × (R130 766,40 − R122 000,00)
                            = R21 960,00 + 25% × R8 766,40
                            = R21 960,00 + R2 191,60
                            = R24 151,60

                 Actual tax payable per year = R24 151,60 − R8 280,00 (primary rebate)
                                            = R15 871,60
                                            = R1 322,63 per month

                 So, increase in salary of R807,20 (8%) brings about an increase in tax of
                 R1 322,63 − R1 126,20 (monthly tax on original salary) = R196,43.

                 So, the amount of the increase in salary that Solly will actually take home is
                 R610,77. 




All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   8
Literacy (Cape Town, 2007).
                                                                                            Topic 1 – Income Tax

3.      Generally taxpayers are paying less in 2008/2009 than in 2007/2008.
        i.e. The tax brackets in 2008/2009 are bigger than in 2007/2008. This means that it is
        possible to earn more in 2008/2009 than in 2007/2008 and yet be taxed at the same rate or at
        a lower rate. For example, someone who earned R115 000,00 in 2007/2008 would have
        been taxed at a rate of 25%
        (tax bracket 1). In 2008/2009, however, a salary of R115 000,00 per year would only be
        taxed at a rate of 18% (tax bracket 1).

        Also, the rebates for 2008/2009 are higher than for 2007/2008. This means that if your
        salary remains the same from 2007/2008 to 2008/2009 then you will actually pay less tax. 

4.
        a.       You only start paying tax when you earn more than the tax threshold.

        b        Monthly tax in 2008/2009 ≈ R4 500,00
                 Monthly tax in 2006/2007 ≈ R5 250,00

                  Decrease in tax = R5 250,00 − R4 500,00
                                   ≈ R750,00

        c.
                 i.      Since 2006/2007, the amount of tax that taxpayers have to pay each month
                         has decreased.  The greatest decrease was from 2006/2007 to 2007/2008,
                         with a smaller decrease from 2007/2008 to 2008/2009. 

                 ii.     Inflation generally increases from year to year. This means that every year
                         things become more expensive. So, if the amount of tax that taxpayers pay
                         each year had to increase, then their buying power would decrease
                         significantly from one year to the next. Tax rates are reduced to try to ensure
                         that people do not lose their buying power, or that the loss in buying power is
                         not too great. 

5.
        a.       R900,00

        b.       Tax payable 2005/2006 = R13 100,00
                 Tax payable 2006/2007 = R10 800,00

                 Reduction in tax payable = R13 100,00 − R10 800,00 = R2 300,00

        c.       On first appearance it looks like the people who earned the biggest salaries
                 benefitted the most from tax reductions. 




All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   9
Literacy (Cape Town, 2007).
                                                                                            Topic 1 – Income Tax

        d.       R40 000,00 salary:
                 % reduction = (R900,00 ÷ R900,00) × 100
                             = 100%

                 R100 000,00 salary:
                 % reduction = (R2 300,00 ÷ R13 100,00) × 100
                             = 17,6% (rounded off to one decimal place)

                 R250 000,00 salary:
                 % reduction = (R6 400,00 ÷ R60 700,00) × 100
                             = 10,5% (rounded off to one decimal place)

                 R500 000,00 salary:
                 % reduction = (R9 900,00 ÷ R159 700,00) × 100
                             = 6,2% (rounded off to one decimal place)

        e.       By looking only at the values in the table, it appears as though the people who
                 earned larger salaries benefitted the most from tax reductions. However, when you
                 calculate the percentage reduction in tax, you see that people who earned lower
                 incomes benefitted much more from reduced tax rates than people who earned very
                 large salaries. 
                 The point of this question is to show that when dealing with numbers and with
                 reductions or increases, it is always important to compare the percentage reduction
                 or percentage increase as this gives a more accurate indication of the actual size of
                 the reduction or increase in relation to the value from which the reduction or increase
                 occurred.




All materials sourced from: Marc North & Bridget James, The Answer Series Study Guide – Grade 12 Mathematical   10
Literacy (Cape Town, 2007).

				
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