How Small Business Taxes Will Work

TAXtalk, South Africa's leading tax magazine, reports that a simplified tax system has recently been introduced in South Africa for many small businesses below an annual turnover limit.

Introduction

The South African Revenue Service (SARS) reveals all, including how the exemption from Secondary Tax on Companies (STC) will work and special measures available to assist businesses that de-register for VAT and register for the simplified tax system.

The Revenue Laws Amendment Act, 2008, which was promulgated on January 8 2009, introduces a simplified tax system for many businesses with an annual turnover of up to R1M. This system will substantially reduce tax compliance costs for qualifying businesses.

Detail

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 R200,000 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 R100,000 of the value of the assets used to calculate the VAT charge due to de-registration. This amounts to a reduction of up to R12,281 in the VAT charge. They will also be able to repay any remaining VAT charge due to de-registration over a period of six months.

Guide and Consultation

SARS has prepared a Tax Guide for Micro Businesses to assist them with understanding the simplified tax system better and to empower them to make an informed decision on registering for it.

The Guide has now been released in draft form for public comment.

This article was produced by SARS for Moneyweb Tax, and is reproduced with the kind permission of TAXtalk.

Article Added Saturday, 21 February 2009

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