The South African Revenue Service (SARS) has issued a tax guide containing information
about the operation of the simplified tax system for micro-businesses.
The system, for businesses with a yearly turnover up to ZAR1m (USD148,000),
provides for a single turnover tax as a substitute for income tax, under which
companies do not pay capital gains tax (CGT) in most circumstances, and are
exempt from secondary tax on companies (STC).
SARS emphasized that, as the system is optional, it is important that entrepreneurs
should review their businesses when deciding on whether to switch, or not, to
the system. Factors such as the profit margin of each business, its expected
tax contributions and – most importantly – its tax compliance costs
should be taken into account in making the decision.
It was also said that, unlike the income tax system that makes use of comprehensive
inclusion rules and a reduction process that requires proof of expenditure to
be maintained, turnover tax will be calculated by simply applying a tax rate
to a taxable turnover. For the 2011/12 tax year, no tax is payable on turnover
up to ZAR150,000, while a progressive scale increases the tax rate to a maximum
of ZAR15,500 plus 6% for all turnover above ZAR750,000 (increased from a tax-free
threshold of ZAR100,000 and a maximum rate of ZAR20,500 plus 7% in the 2010/2011
tax year).
Turnover tax will be levied annually on a year of assessment that runs from
the beginning of March of the one year to the end of February of the following
year. It will include two six-monthly interim (provisional) payments. An existing
micro-business that opts for turnover tax must apply to do so before the beginning
of a year of assessment and remain in the system for at least three years. A
new micro-business can register for turnover tax within two months from commencing
business activities.
Micro-businesses that choose turnover tax will be specifically exempt from
CGT. However, the taxable turnover must include 50% of the amounts received
from the disposal of immovable property mainly used for business purposes, other
than trading stock; and any other asset used mainly for business purposes, other
than any financial asset.
Businesses that choose turnover tax will also be exempt from STC (to be replaced
by a dividend withholding tax) to the extent that their dividend distributions
do not exceed ZAR200,000 a year. Any excess will be subject to STC.
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