Tens of thousands of businesses that qualify for Small Business Corporation (SBC) tax benefits – including for the first time, those in a tax loss position – are set to benefit from a new R15 000 rebate from the South African Revenue Service (Sars). But, a few will lose out too.
The annual refundable tax compliance rebate, set to come into effect on January 2016, would replace the existing SBC tax if the provision, contained in the 2014 Draft Taxation Laws Amendment Bill released in July, is approved by Parliament.
Currently, qualifying SBCs are taxed according to reduced tax rates, instead of the flat corporate tax rate of 28%. But, if the bill is adopted, small businesses with an annual turnover of between R1 million and R20 million would receive the rebate and be taxed at the corporate tax rate.In accordance with the proposed provisions, those with a turnover of between R335 000 and R1 million can qualify for micro-business tax, while those with a turnover below R335 000 will receive tax exemption, which is up from the current level of R150 000.
The new rebate was proposed in an interim report by the tax committee headed by Judge Dennis Davis. The report was made public in July.
Gordhan already introduced a number of recommendations in this year’s budget. The committee says the main purpose of the new rebate will be to assist SBCs with their tax compliance costs.
Most small businesses that qualify for SBC at present are set to benefit, particularly those with an annual taxable income of under R50 000 or those in a tax-loss position. The committee points out that in the 2012 tax year 40 633 of the 86 333 active SBCs did not record taxable income.
Added to this 25 636 SBCs had taxable income of less than R100 000, that on a mean level of R50 000 taxable income translates to a tax concession of as little as R14 000.
If realised, a SBC that makes a loss of R20 000, which at present would not incur any tax liability, would receive a refund of R15 000, while a SBC with a taxable income of R30 000 which at present has no tax liability, would under the new proposed regime receive a R6 600 tax refund. But, those with higher taxable incomes would lose out. The committee says just 4 519 SBCs in the 2012 year qualified for the maximum benefit under the current law, which can be as much as R94 549.
The committee believes the Receiver’s chief purpose is revenue collection and not the growth of the sector.
Small businesses, adds the committee, do not account for much job creation – mostly because so many fail. Targeting tax cuts at small firms with higher turnovers – which are often cited as being responsible for a sizeable amount of employment creation – is therefore not very beneficial, it suggests. But what the committee fails to investigate, is to what extent jobs were created by those firms that received the tax incentive versus those that didn’t, which some have argued should have been the intention.
- To submit comments on the tax committee’s report by August 31 visit www.taxcom.org.za.