New tax system for small businesses

The South African Revenue Service (Sars) has launched a new tax system that will dramatically lower the time and cost of submitting tax returns for small businesses.

Known as Turnover Tax, the innovative system is available to small businesses with a turnover up to R1-million a year, replacing income tax, provisional tax, capital gains tax, secondary tax on companies and value added tax (VAT).

"This initiative is in line with the government's broader mandate to encourage entrepreneurship and create an enabling environment for small businesses to survive and grow," Sars said in a statement this week.

The introduction of of the new tax system this week coincided with an increase in the compulsory VAT registration threshold, from R300 000 to R1-million.

Simplified tax system

Under the Turnover Tax system, qualifying small businesses will only need to submit two interim returns and a final return for assessment. This represents a huge saving in time and costs relating to the current provisional tax, income tax and VAT system, which requires businesses to submit an average of 10 returns a year.

"According to independent research commissioned by Sars and the National Treasury, it costs small businesses an average of about R7 000 a year to ensure that tax returns for income tax, provisional tax, VAT and employees' tax are prepared, completed and submitted as required," Sars said.

Turnover tax

Turnover Tax is calculated by simply applying the relevant tax rate to a business's annual taxable turnover.

Turnover Marginal rates
R0 - R100 000 0%
R100 001 - R300 000 1% of each R1 above R100 000
R300 001 - R500 000 R2 000 + 3% of the amount above R300 000
R500 001 - R750 000 R8 000 + 5% of the amount above R500 000
R750 001 and above R20 500 + 7% of the amount above R750 000

Turnover Tax is available to sole proprietors, partnerships, close corporations, cooperatives and companies provided they have a taxable turnover of R1-million or less in a year of assessment and meet certain other criteria.

"It is not available to labour brokers, personal service providers or persons that render professional services," Sars said. "Public benefit organisations and recreational clubs also do not qualify, since they already enjoy specific concessions."

Small businesses already registered for VAT that opt to register for Turnover Tax will automatically be deregistered from the VAT system if their application for Turnover Tax is successful.

Voluntary tax system

According to Sars, Turnover Tax is voluntary, so qualifying small businesses can choose whether to register for it or not, depending on their individual circumstances. Applications to register for Turnover Tax in the current 2009/10 tax year close on 30 April 2009.

"Thereafter applicants will only be able to register for the Turnover Tax for the next tax year to avoid the administrative challenge for businesses and Sars of running multiple tax systems in a year simultaneously," Sars said.

Start-up businesses can also apply to register within two months of their establishment. More information is available on the Turnover Tax Website or by phoning 0800 007 277.

Useful resources:
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