New tax method to help small firms

- Sanchia Temkin, Professional Services Editor - Business Day

Many businesses have yet to respond to the opportunities offered by the turnover tax system.

The country’s new turnover tax system will be of benefit to many small and medium-sized enterprises .

The tax system, which was recently launched by the South African Revenue Service (SARS), is expected to reduced the time and cost of submitting tax returns.

“Strangely enough, though, for thousands of small firms the penny has yet to drop,” said Muneer Hassan, project director for tax at the South African Institute of Chartered Accountants , who highlighted the significant potential savings in administration costs at the weekend.

SARS spokesman Adrian Lackay said recently the new tax system was intended to cut red tape and reduce the administrative burden on small businesses. The new tax system was announced by Finance Minister Trevor Manuel in last year’s budget. It is incorporated into the Income Tax Act.

Hassan said micro-businesses would be taxed under a table very different to those which applied to other taxpayers and companies.

SA’s small businesses face the heaviest tax burden when it comes to the time and cost of filing tax returns, according to recent independent research carried out at the request of the SARS and the Treasury.

It costs the average small business R1478 to register, one reason why about 60% of them decide to stay informal. Tax professionals identified provisional tax as the “most burdensome” tax for small businesses, although value-added tax (VAT) was the most expensive and time consuming, the research said.

The new legislation would be available to small businesses with a turnover of up to R1m a year and replaces income tax, provisional tax, capital gains tax and VAT. The tax will be levied on turnover and not the taxable income to which we are all accustomed, Hassan said.

He said this would make life a lot easier for small businesses because the determination of taxable income could be a highly complex exercise. Further, secondary tax on companies, where dividends were less than R200000 annually, would not be applied.

Regarding capital gains tax, the turnover tax would include 50% of the amounts received from the disposal of business assets in taxable turnover. Immovable property would only be included to the extent that it was used for business purposes.

Hassan said the turnover tax was levied annually, from the beginning of March to the end of February of the following year. Payments were to be made in two six-monthly interim, or provisional, payments.

He advised that in order to opt for the turnover tax a business needed to apply before the beginning of the year of assessment and remain in the system for at least three years, unless disqualified.

This year SARS extended the registration date to April 30.