Antecedentes

The turnover tax system presents an added package (besides turnover tax) of tax benefits which could be seen as incentives in their own right, to micro-businesses. It could be possible to document the embedded benefits of the turnover tax system as part of the system itself and consider them altogether as one incentive (Maritz 2013: 32 – 33). However, the added tax advantages (although they come along with turnover tax) to the micro-businesses cannot be overlooked and, therefore, deserve to be mentioned in their own capacity as tax benefits of the turnover tax system (Maritz 2013: 32 – 33). The different added tax advantages that come along with the turnover tax system are discussed below.

a. One form of tax replacing many different types of taxes

The replacement of income tax, VAT, provisional tax, CGT, and dividends tax, means that a huge administrative burden is removed (Maritz 2013: 33). This has an element of reducing the tax compliance burden for small businesses as the current system is more simplified and deals with only one type of tax for the entire business. The exclusion of VAT removes a huge administrative burden from micro-businesses because the VAT system involves intensive record keeping (Rahim 2015: 24).

b. Reduced and simplified records to be kept by the micro-business

The simplification and reduction of records to be kept by micro-businesses is a huge incentive in its own right and it goes a long way into helping businesses to achieve compliance with minimal costs. Micro-businesses are required to keep fewer records compared to the normal tax system in which details relating to different tax types have to be kept. According to paragraph 14 of the sixth schedule of the Income Tax Act, a micro-business is required to keep only records of all amounts received, dividends declared, a list of each asset with a cost price of more than R10 000 at the end of the year of assessment as well as a list of liabilities exceeding R10 000. This could mean that micro-businesses do not need to outsource the tax/accounting function and therefore may save in terms of both funds and time (Maritz 2013: 33;

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Rahim 2015: 17). No detailed bookkeeping is required in the case of a standard tax system.

c. Reduced number of returns submitted to SARS by the micro-business

The reduction in the number of returns to be submitted to SARS presents an added tax incentive to micro-businesses, embedded within the turnover tax system. Qualifying micro-businesses are required to submit only two interim payments and one final return for assessment (SARS 2017a: 27). The incentive becomes more vivid when a comparison is made with the standard tax system in which, according to Maritz (2013: 32), close corporations submit nine returns (six VAT returns, two provisional tax returns and one final income tax return) during the year. Therefore, the amount of time and funds saved in this regard by the micro-business could be vital in the further growth and expansion of the business.

d. Registered micro-businesses are specifically exempt from capital gains tax

The exemption from CGT is in relation with immovable assets mainly used for business purposes and movable assets exclusively used to carry on the business of the taxpayer (Du Toit 2012: 67). Proceeds derived from the disposal of an asset that has not been used mainly for business purposes must be excluded from the taxable turnover of a micro-business. Immovable assets are regarded to have been used mainly for business purposes if more than 50 per cent of their floor area is occupied or used for business operations. Proceeds from any other asset disposed of are taken into account if the asset is used for business purposes, for more than 50 per cent of the time. A CGT calculation is not prepared, but the micro-business is only required to add 50 per cent of all receipts of a capital nature to its taxable turnover (SARS 2017a: 19). Paragraph 57A of the eighth schedule also allows a micro- business to disregard any capital gain or capital loss from the disposal of any asset used mainly for business purposes.

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e. Tax incentive available on exiting VAT to register for Turnover tax (exit VAT relief)

Vendors who deregister from the VAT system are required to pay exit VAT on the lesser of the cost or market value of the assets held before deregistering. SARS (2011a: 4) states that vendors that apply to deregister from the VAT system in order to register for turnover tax shall be allowed to pay their respective exit VAT over a six month period. This reduces the burden of having to pay a once off amount which could be too much for the small business.

f. Favourable/extended tax periods for the submission of VAT returns

From 1 March 2014, registered micro-businesses were allowed to submit VAT returns under Category D (SARS 2017b: 23). This means that micro-businesses are required to submit one VAT return for every six calendar months usually ending on the last days of February and August. Submitting on a six-monthly basis would save the micro-business some valuable time which could be allocated to growing the business. When compared to businesses that submit their VAT returns under category C (monthly basis) or categories A and B (two-monthly periods), it is recognisable that category D is more extended.

4.3.3 Possible pitfalls and gaps within the turnover tax regime for micro-