South Africa Launches Simplified Tax System For Micro Businesses

by Robert Lee, Tax-News.com, London

10 March 2009

The South African Revenue Service (SARS) has announced that businesses have until April 30 to submit applications to register for the turnover tax system, an optional parallel tax regime which is intended to dramatically simplify tax compliance for small firms.

Under the turnover tax system, which went into effect on March 1, 2009, qualifying small businesses will only need to submit two interim returns and a final return for assessment. This should translate into a substantial 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 South African Treasury, it costs small businesses an average of about ZAR7,000 (USD665) per year to ensure that tax returns are prepared, completed and submitted as required.

Unlike the income tax system, which makes use of comprehensive inclusion rules and a reduction process that requires proof of expenses to be maintained, the turnover tax is calculated by applying a low set of tax rates to the turnover of the business. The turnover tax will be payable annually on assessment with two six-monthly interim payments. Capital gains will be taxed by simply including 50% of the amounts received from the disposal of business assets in the turnover to be taxed.

Companies can voluntarily opt-in to the turnover tax system, which is available to the following forms of businesses: sole proprietors, partnerships, close corporations, cooperatives and companies provided they have a taxable turnover of ZAR1m or less in a year of assessment and meet certain criteria. It is not available to labour brokers, personal service providers or persons that render professional services. 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 the turnover tax will automatically be deregistered from the VAT system if their applications for the turnover tax are successful.

Applications to register for the turnover tax system in the current 2009/10 tax year close on April 30, 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. Start-up businesses can also apply to register within two months of their establishment.

The turnover tax will be charged at the following rates:

• ZAR0 to ZAR100,000: 0%;
• ZAR100,001 to ZAR300,000: 1%;
• ZAR300,001 to ZAR500,000: ZAR2,000 plus 3% of the amount above ZAR300,000;
• ZAR500,001 to ZAR750,000: ZARR8,000 plus 5% of the amount above ZAR500,000
• ZAR750,001 and above: ZAR20,500 plus 7% of the amount above ZAR750,000.

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