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South Africa Introduces Turnover Tax For Micro Businesses

by Robert Lee,, London

15 January 2009

The Revenue Laws Amendment Act, 2008, which was promulgated on January 8, 2009, has introduced a simplified tax system for many businesses in South Africa with an annual turnover of up to ZAR1m (USD100,380), which is designed to substantially reduce tax compliance costs for qualifying businesses.

The simplified tax system essentially consists of a single turnover tax as a substitute for income tax, capital gains tax, secondary tax on companies (STC) and value-added tax (VAT). It will come into operation on March 1, 2009. Qualifying businesses will have the option of choosing between the simplified tax system and the existing tax system.

The turnover tax is a stand alone tax and does not form part of the usual calculations for determining income tax. 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 basically 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. Close corporations and other corporate entities that choose the simplified tax system will be exempt from STC to the extent that their dividend distributions do not exceed ZAR200,000 a year.

Special measures are available to assist businesses that de-register for VAT and register for the simplified tax system. They will be able to make use of a deduction of up to ZAR100,000 of the value of the assets used to calculate the VAT charge due to de-registration. This amounts to a reduction of up to ZAR12,281 in the VAT charge. They will also be able to re-pay any remaining VAT charge due to de-registration over a period of six months.

The 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
  • R750,001 and above: ZAR20,500 plus 7% of the amount above ZAR750,000.

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