SARS' new turnover tax is likely to cost you more.
The introduction of a simplified system of calculating your tax burden based solely on the turnover of your small business will certainly save you money in compliance costs - money paid to consultants like ourselves, but is also likely to cost you significantly more on your tax bill
The alternative system provides for a tiered system of taxation on turnover up to R1 million which will cost your small business R38,000 in taxation. On the face, that seems reasonable at 3,8%, however let's take a closer look ...
Given that the small business would qualify to use the small business corporation tax tables, a small business earning less than 19% net profit before tax will pay more on the turnover tax than the existing regime. A move to the turnover tax also by definition requires the person not to be registered as a VAT vendor - your corporation would therefore also lose any of the input benefits gained from these...
An example, a small business with a R800,000 turnover and a net profit margin of 15% would pay R6,580 income tax plus R11,342 dividend tax if all the profits were distributed. A total of R17,922 whereas the dividend tax would result in a total tax of R24,000! An individual would pay even less under the current regime with tax of R11,822 making the turnover tax even less palatable.
Other factors such as your age, the nature of your business, and who your partners are, will all have a bearing on a decision to move to this new system. SARS has opened a window from 1 March 2009 to 30 April 2009 to make this decision for the 2010 tax year. Our advice....think very carefully.
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