Follow Your Money: Taxes; The Uninvited Guests of Personal Finance.
Issue 7: Consumption Taxes + Mastercard Foundation Scholarship + South Africa Escapes Recession.
Hi friends,
Happy Tuesday and welcome to Issue 7. ๐๐พ
Last week, we talked about staying motivated and building your debit score. ๐๐พ
This week, weโre diving into an unpopular terrainโtaxes. โจ๐
TAXES
The Uninvited Guests of Personal Finance.
Hereโs an open secret ๐ค๐พ: While you might not be earning enough to pay taxes, you my friend, are definitely spending enough to pay taxes. ๐ฉ
You see, taxes are like those Instagram Ads. Even though we didnโt ask for them, we just canโt escape them ๐ฉ๐ฉ. When we choose to use Instagram, we are also choosing to see those Ads. ๐
Similarly, taxes are often the result of our financial decisions ๐. When we actively choose to spend or earn ๐, we are inactively choosing to pay taxes, and pay taxes, we must. ๐ค
There are multiple bits and pieces when it comes to taxes, but for this newsletter, weโll focus on understanding your Personal Income Taxโจ and your Consumption Taxโจ and how to strike a healthy balance between the duo.๐ฏ
This week, we double down on Consumption Tax with a few bullet points. ๐๐พ
Simply put, consumption tax is a type of tax levied on goods and services that you purchase. ๐ฏ
Value Added Tax (VAT) and Sales Tax are popular forms of consumption tax. ๐ฏ
Important note: VATs are paid at every point of a supply chain. VATs are charged respectively by the producer, manufacturer, wholesaler, and retailer, and you and I do the honor of carrying all that weight when we choose to break our budget. ๐ฏ
Sales Tax on the other hand is charged at the point of sale.๐ฏ
Most VAT and Sales Tax are percentages of your total purchases i.e. the higher you spend, the higher you pay in tax. ๐ฏ
A key difference: While your Value-Added Tax is a summation of all the different taxes levied at other points of production, your Sales Tax is levied at the point of sales, once and for all. ๐ฏ
It is possible to pay Sales Tax and VAT tax at the same time but so far rare. ๐ฏ
Different countries have different preferences and most countries adopt either the VAT system or the Sales Tax system. ๐ฏ
So hereโs the catch ๐ค๐พ: when we stick with our budget, we get to save more ๐. But when we donโt, not only do we get to spend more and break our account but we also pay a high price through taxes. ๐๐พโโ๏ธ
Final takeaway: ๐๐พ Remember, my friend, that we live in a world where we are inspired to build credit scores ๐ฉ, motivated to increase our spending habits , and rewarded by the system through high VAT. ๐ ๐พโโ๏ธ
In the next issue, weโll dive into Personal Income Tax and what this means for students already earning income and/or soon to start earning. ๐ฏ
๐๐พ Thatโs a wrap on Issue 7.
FINANCIAL NEWS & TRENDS in AFRICA
connecting the dots across frontier markets.
South Africa Escapes Recession (narrowly) & the economy remains bigger than it was pre-pandemic. ๐๐พโจ
Takeaway: South Africa remains the second-largest economy in Africa and this narrow escape might have just saved the country from losing its place โจ. But beyond that, this feat is an invitation to make peace with our debit score and spending habits. ๐ฏ
Ordinarily, this could be a sign of a stable economy but before we bask in euphoria, load shedding reminds us that we still have a long way to go. ๐ ๐พโโ๏ธ
Nigeria subjects Cryptocurrencies and NFTs to a 10% Tax. ๐๐พโโ๏ธ
Takeaway: In the recently released Finance Bill, the government introduced digital assets as eligible for Capital Gains Tax (CGT) ๐. What this means is that any proceeds made from disposing of your digital assets will be subjected to tax, by 10% ๐ฉ
Can we talk about the increasing interests of African governments in digital earnings ๐ค? Kenya led the movement with its tax levy on influencers and not too long, Nigeria followed suit. ๐๐พ
๐๐พ If two of the five biggest economies in Africa are paying keen attention to our digital lives, we shouldnโt be too surprised when other countries follow. Itโs only a matter of when not if. ๐ฏ
Takeaway: G for Gold and Ghana! ๐ฅ Take it from a country thatโs been racing to outlive its debt, this doesn't come as a surprise but a sheer reminder that African countries do have incredible mineral resources at their disposal. ๐ซ
Given that gold makes up nearly 5% of Ghanaโs GDP โจ, the hope is that this development will bring some level of economic stability to the country, no matter how small. ๐ฏ
MONEY TRIVIA
You decided to break your budget to buy a new pair of Adidas sneakers. They cost $150 and your receipt says 15% VAT. Whatโs the original price of the sneakers? ๐ฏ
A customer goes to a retail store and purchases a pair of shoes for $50. At the cash register, an additional 7% tax is added to the total amount. Is this tax a sales tax or a VAT? ๐ฏ
A manufacturer sells a laptop to a retailer for $800. The retailer then sells the laptop to a customer for $1,200. The retailer charges an additional 20% tax on the selling price. Is this tax a sales tax or a VAT? ๐ฏ
RESOURCE LIBRARY.
Freebies
10 Plugins to help supercharge your productivity by Zain Kahn.๐ฏ
Opportunities.
Join the next cohort of the Mckinsey Forward Program โจ, โForward is a free, five-month online learning program offered by McKinsey to equip young talent with must-have practical skills to succeed in the future of work.โ - Mckinsey
Scholarship
TRIVIA ANSWERS ๐ฏ
$133.93
Sales Tax
Sales Tax
๐๐พThatโs a wrap for Issue 7 and below is our quote of the week, inspired during a conversation with my coach. ๐ฏ
โUnless we increase our capacity to receive, we canโt increase our capacity to give.โ
Until next time,
Dulra โค๏ธ
Founder/CEO, Dot.