Few firms take up tax offer

Pretoria - The new tax on estimated turnover, for which small and micro-enterprises can register, will replace all other taxes.

Despite this opportunity to do away with VAT returns, provisional tax, capital gains tax and income tax, fewer than 1 000 small enterprises have so far registered.

The deadline is April 30.

Finance Minister Trevor Manuel announced the new tax for small enterprises with an estimated turnover of R1m or less in his 2008 budget.

Narcizio Makwakwa of the SA Revenue Service (SARS) explains that the new tax system rests on three basic pillars.

The first is that the company's turnover should be R1m or less. The second is that personal-service organisations are excluded, and the third is that the company will be excluded if 10% of the turnover is derived from passive income (such as interest income).

Makwakwa concedes that confusion could arise about registration or deregistration for VAT.

Companies choosing to register for the new turnover tax may not register for VAT as well.

Edward Nathan Sonnenbergs tax director Gerhard Badenhorst says the advantage of the turnover tax is that it will certainly relieve the administrative burden.

KPMG points out that if a small business registers for the turnover tax it would not be able to deregister for the following three years, unless it closes down.

According to KPMG, one of the disadvantages of the new tax is that a small business operating at a loss will still have to pay turnover tax.

Badenhorst explains that the tax rate attached to this tax is lower, but companies should note that the system does not allow them to claim deductions for expenses.

KPMG also points out that clients - including the government, which requires its suppliers to be registered for VAT - prefer to do business with VAT-registered dealers.

Makwakwa says that people could forget about the other taxes in question if they choose to remain registered for VAT. He uses the example of a close corporation not opting for the turnover tax.

"If the close corporation distributes cash, this is regarded as a dividend on which 10% secondary tax on companies (STC) is payable."

On a distribution of R100 000 the STC is already R10 000. Should the company sell an asset later in the year, this becomes subject to capital gains tax with a maximum effective rate of 14%, and that of trusts 20%.

None of these taxes applies to the turnover tax option.

KPMG advises companies to thoroughly think through whether the turnover tax will really work in their favour.

"Weigh the costs of the administrative red tape up against the convenience of paying an annual tax on turnover, even if the result is that more tax becomes payable."

- Sake24.com

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