Given a choice, paying taxes and filing annual tax returns would be a thing of the past for many a business owner.
The reality, however, is that formally registered small business owners must pay their taxes. Understanding and complying with their tax obligations instead of avoiding and evading them frees small business owners to focus on strengthening and growing their businesses.
Small business owners in South Africa typically pay three types of taxes – turnover tax, Value Added Tax (VAT), and employees’ tax. Employees’ tax is made up of Pay-As-You-Earn tax, and contributions to the Unemployment Insurance Fund.
Depending on the legal status of the business (i.e. whether it is registered as a private company or other legal entity), the business may also be liable to pay corporate income tax. A capital gains tax is payable where the small business has made a profit from the sale of certain types of assets.
More detailed information on these taxes is available from the National Small Business Office of the South African Revenue Service. The tax burden in South Africa is often criticized as being too burdensome for small businesses. This criticism relates to the Rand value of the taxes paid by small businesses, as well as the time and cost required to complete all the necessary documentation to register as a taxpayer and file tax returns.
A 2007 World Bank Study on the tax compliance costs of South African small businesses found that:
• The tax registration process is complicated and cumbersome.
• Small business owners in South Africa pay tax practitioners an average of R7 030 per annum to prepare and submit tax returns, with VAT attracting the most effort and expense.
• SARS falls short of the standards laid out in its service charter in areas such as timely payments of refunds, responding to physical and electronic correspondence, answering phone calls, and time spent waiting for service at SARS offices. In response, the National Treasury and SARS have sought to introduce reforms over the years.
For instance, in the 2012 national budget speech by the Minister of Finance, changes were announced to the taxable income and capital gains tax rates to provide tax relief to small businesses. In addition, small businesses with a turnover of up to R1 million per annum will now be able to pay certain taxes (turnover tax, VAT and employees’ tax) twice instead of once a year, making the process more efficient for qualifying small business owners.
Tell us what you think. Has SARS done enough in recent years to improve its service levels (e.g. reducing errors in its assessments, paying refunds more timeously, better service at branches and call centres)?
Do small businesses in South Africa pay too much in taxes?
Has SARS made it easier for small business owners to register and pay for taxes independently, or are they still reliant on tax practitioners?
Post By: Fadzai Munyaradzi