TURNOVER TAX: A BROAD OVERVIEW

1. INTRODUCTION

1.1.? Turnover tax is a simplified system of taxation designed to alleviate the administrative and cash flow burden of normal tax, specifically for registered micro businesses.

1.2.?In fact, the turnover tax system, which is dealt with under sections 48 to 48C read with the Sixth Schedule to the Income Tax Act 58 of 1962, replaces income tax, capital gains tax, provisional tax, VAT and dividends tax for micro businesses with a qualifying annual turnover of R1 million or less. The benefit is that a registered micro business is instead taxed on a turnover basis at a very low rate.

2. WHO CAN REGISTER?

2.1. A natural person, company, and close corporation may qualify as a micro business. However, a trust does not qualify. It is not the individual businesses of a person that are registered as micro businesses with SARS, but rather the taxpayer registers as a micro business and then all business activities conducted by that taxpayer become part of the micro business.

2.2.?The main requirement for registration is that a person’s ‘qualifying turnover’ (as defined in paragraph 1 of the Sixth Schedule) for a year of assessment must not exceed R1 million (reduced for a part of the year).

2.3. Some persons, despite having qualified annual turnover of R1 million or less, are, in terms of paragraph 3, automatically disqualified from registering as a micro business. One such example is where more than 20% of a natural person’s receipts during a year of assessment consist of income from the rendering of a professional service in the fields of inter alia accounting, real estate broking, engineering, or legal services.

3. HOW IT WORKS

3.1. A micro business is taxed on its ‘taxable turnover’. It is defined in paragraph 5 of the Sixth Schedule and includes revenue amounts received during a year of assessment from carrying on business activities in South Africa and includes amounts described in paragraph 6, but excludes amounts contemplated in paragraph 7.? Notably, a person’s ‘taxable turnover’ can exceed R1 million since its definition differs from that of ‘qualifying turnover’.

3.2. Turnover tax is calculated by applying the sliding scale ranging between 0% and 3% to the micro business’ taxable turnover. Turnover tax is payable to SARS twice a year.

3.3. Within the first six months (that is, by 31 August), the taxpayer must estimate its taxable turnover for the year, calculate the tax on this amount and pay 50% thereof to SARS. By the end of the year, it must estimate its taxable turnover again, calculate the tax thereon and pay it to SARS (less the first interim payment). The actual taxable turnover will be disclosed after year-end in the taxpayer’s tax return after which the taxpayer will owe SARS or SARS will owe the taxpayer after taking the interim payments into account.

4. TAKE NOTE

There are a number of tax avoidance provisions and possible penalties contained in the Sixth Schedule. It is therefore important to do thorough research and consult with a tax expert before one attempts to register for turnover tax.