Turnover-based tax blow
Tax practitioners tend to get hot under the collar when the discussion is around fees charged, but the grim reality is that small businesses - entities that probably need professional taxation services the most - can usually least afford such services.
According to a survey of South African tax practitioners conducted during 2007, it costs a typical small business an average of R7 030 per annum to have their income tax, provisional tax, VAT, and PAYE returns completed by a tax professional. The South African Revenue Service (Sars) has admitted that compliance costs in the SMME sector ranges from between 0,1% and 2,2% of annual turnover, increasing disproportionately for smaller businesses.
The temptation for small businesses to remain outside the tax net, despite the 2006 Small Business Tax Amnesty, therefore remains strong.
Part of the problem is the complexity of the Income Tax Act itself, which includes a plethora of rules around calculating the proportion of income that is taxable. It is this complexity that is largely to blame for the high compliance costs, hence the announcement of a proposed option whereby small businesses with turnover less than R1m may opt to be taxed on gross turnover, rather than on taxable income. Similarly, such businesses are also exempted from the requirement to register as VAT vendors, which will further simplify their administration burden.
Capital gains are excluded from the R1m turnover threshold; however, 50% of capital receipts will be taxed at the applicable tax rate as though they represented turnover. There are anti-avoidance provisions aimed at ensuring that large capital gains are not deliberately routed through a small business in order to take advantage of the favourable tax rates.
Small businesses may be held as sole traders, partnerships, or incorporated entities. However, similar provisions as for Small Business Corporations are applicable, including a limitation on interests in other business entities. Investment income is also restricted to 10% of turnover.
Providers of personal and professional services are also disqualified from the turnover-based tax regime, since profit margins on such services tend to be a lot higher than is the case with manufacturing or retail enterprises. In addition, any small business generating less than R1m per annum but decides to voluntarily register as a VAT vendor, is also precluded from using the turnover-based tax regime.
The proposed tax rates, which are less than those originally proposed in the 2008 Budget, are as follows:
Turnover
Tax liability
R0 - R100 000
Exempt
R100 001 - R300 000
1% of the amount exceeding R100 000
R300 001 - R500 000
R2 000 plus 3% of the amount exceeding R300 000
R500 001 - R750 000
R8 000 plus 5% of the amount exceeding R500 000
R750 001 and above
R20 500 plus 7% of the amount exceeding R750 000
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Comments
Two question on this
1) If you opt to be taxed on turnover or taxable income will it be forever or can you change every tax year.
2) What happens if you make a taxable loss and meanwhile you have opted to be taxed on turnover.
by Sello on August 11 2008, 07:50
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Will sole traders be able to opt for turnover-based system too?
I thought the initial proposal was for incorporated businesses only.
by Barefoot Billionaire on August 11 2008, 10:02
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Why must the honest man in the street pay taxes when ANC cronies like Zuma 'forget' to submit tax returns ? I'm sure Julius of the ANCYL, zuma's 'killer' supporter doesn't fill in tax returns either.
by Happy Gilmore on August 11 2008, 14:58
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The original proposal in the budget was that once you opt in, you are stuck for a certain number of years. So you wouldn't be able to chop and change, but you wouldn't be in forever either.
My understanding is that if you opt in for the turnover . .more
by carl on August 12 2008, 12:36
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Is this new regime effective as of January 1, 2009?
by Jimmy on January 06 2009, 21:21
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Hi there
Sello:
I think they have proposed a minimum three year period - once you choose to be taxed on the turnover basis you are fixed in for 3 years. After 3 years you can opt to choose the normal tax basis, once again for a minimum . .more
by Tommy Louw on February 19 2009, 13:47
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