This is a very important article because we've now built the learning journey as follows:
Why do we pay tax?
Who is a taxpayer?
What types of tax do we pay?
And this one can be particularly engaging because we can make the taxpayer recognise taxes they may already encounter in everyday life.
What Types of Tax Do We Pay?
Taxes are not one-size-fits-all.
You earn an income.
You run a business.
You buy goods or services.
You employ people.
You own or use certain assets.
Different activities can give rise to different tax obligations.
So let's open the toolbox.
Meet the Tax Family
Think of taxation as a big family.
Each member has a different job.
Personal Income Tax
Earn income as an individual?
You may have personal income tax obligations.
This can include income earned through:
Employment
Business
Professional services
Trade or other self-employed activities
Company Income Tax
A company can have tax obligations based on its taxable income and the applicable laws.
Think:
Company → Income → Tax obligation
Simple concept. Different rules.
Value Added Tax — VAT
You've probably encountered this one without even thinking about it.
When you purchase certain taxable goods or services, VAT may be involved in the transaction.
Buy something
Receive your bill/receipt
VAT may form part of the transaction
VAT is a consumption tax.
Withholding Tax — WHT
Here's one that often confuses people.
Withholding tax generally involves tax being deducted at source from certain payments and remitted to the relevant tax authority, subject to the applicable rules.
For example, certain payments made for services or contracts may attract withholding obligations.
Think of WHT as:
Payment → Deduction → Remittance
But remember:
WHT is not simply “another tax everyone pays.”
Whether it applies depends on the nature of the payment and the applicable rules.
PAYE
Pay As You Earn
If you're an employee, you may have heard this phrase before.
PAYE is the system through which applicable Personal Income Tax on employment income is generally deducted by an employer and remitted to the relevant tax authority.
In simple terms:
You earn a salary → applicable tax is calculated → tax is deducted → it is remitted.
So when you see PAYE on your payslip…
Now you know what it means.
Other Taxes & Government Charges
The tax landscape doesn't stop with the examples above.
Depending on your circumstances and the applicable laws, there may be other taxes, levies, fees, duties or charges relating to particular activities, transactions, properties, businesses or government services.
This is important:
Not every payment made to the government is necessarily a tax.
Some payments may be:
Taxes
Levies
Fees
Licences
Charges
They may have completely different legal bases and purposes.
Don't memorise everything!
Here's the secret.
You don't need to become a tax lawyer overnight.
Instead, remember this:
Different activity → potentially different tax obligation.
Your situation | Tax that may be relevant |
|---|---|
Employee | PAYE / Personal Income Tax |
Self-employed person | Personal Income Tax |
Company | Company Income Tax |
Certain taxable purchases | VAT |
Certain payments | Withholding Tax |
A very important warning
Don't look at someone else's tax bill and assume:
“That's what I should pay too.”
Not necessarily.
Tax obligations can depend on:
Your circumstances
Your income
Your type of business
The nature of a transaction
The relevant period
The applicable law
When you're unsure, get proper guidance.
360 Gov tax-smart tip
Instead of asking:
“How much tax does everybody pay?”
Start asking:
“What tax obligation applies to ME?”
That's a much smarter question.
Quick check
Let's see if you've unlocked the tax toolbox!
1. Which tax is commonly associated with employment income?
A. PAYE
B. VAT
C. Company Income Tax
D. Import Duty
Correct answer: A. PAYE
Nice one!... Did you get the answer?
Next - Try this one..
2. What does VAT generally relate to?
A. Consumption of taxable goods and servicesB. Employee attendance
C. Business registration
D. Your TIN number
Correct answer: A.
3. Does every taxpayer necessarily pay every type of tax?
A. YesB. No
Correct answer: B. No
Different taxpayers have different obligations depending on their circumstances and the applicable laws.
YOUR TAX-SMART MOMENT
If you've learned just one thing from this article, make it this:
There isn't one single tax that applies to everyone in exactly the same way. Different taxes exist for different circumstances, activities and transactions.
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