Tax boost for small business

Kimberly Guest
By Kimberly Guest, ITWeb contributor
Pretoria, 20 Feb 2008

Small businesses are set to receive tax relief from finance minister Trevor Manuel.

Announcing several tax proposals in his 2008 budget speech, Manuel revealed government would take further steps to reduce the tax compliance burden on small businesses.

The budget review explains these measures are aimed at supporting small businesses, reducing compliance costs and encouraging the formalisation of informal businesses.

These initiatives will see small businesses within the revenue threshold accessing presumptive tax systems, as well as tax incentives for venture capital investors looking at qualifying small enterprises and start-ups.

Reduced burden

The first initiative, aimed at directly benefiting small businesses, is a presumptive turnover tax that should reduce administrative requirements.

"I am glad to announce that the 2008 budget reduces the administrative burden on small business by introducing a presumptive turnover tax as an alternative to income tax and VAT. [This will be available] for businesses with a turnover less than R1 million a year," Manuel explained.

However, National Treasury warns this system is aimed at reducing tax compliance costs and not necessarily tax liability.

The review goes on to explain that the presumptive tax system will be elective. However, those who join the system will be required to remain for a minimum of three years - unless they exceed the revenue threshold - and will not be able to rejoin for five years after choosing to exit. Personal services "rendered under employment-like conditions" and professional services are excluded from this tax system.

Additionally, Manuel has raised the threshold for businesses that submit VAT returns on a six- or four-monthly basis to R1.5 million, from R1.2 million. The VAT registration threshold will be raised from an annual turnover of R300 000 to R1 million.

"These measures will significantly reduce paperwork for small businesses, while encouraging regular bookkeeping in preparation for the migration to the normal income tax system."

Cheaper funding

Small and medium businesses (SMBs) seeking access to equity finance should also see some benefit from the introduction of tax incentives for venture capitalists.

"Access to equity finance has been cited as one of the main challenges to the growth of the SMB sector. The private equity industry in SA is well developed, but the industry's appetite for start-up, early stage and seed-capital type transactions is low," the review says.

National Treasury proposes that general venture capital investments, outside the mining sector, qualify for a 30% up-front deduction. Annual deductions are to be capped at R500 000 for individuals, R750 000 for corporations and R7.5 million for venture capital funds.

These tax incentives are targeted at assisting high growth and hi-tech companies with an annual turnover of up to R14 million or gross assets of up to R7 million.