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 Tax breaks for small business in South Africa 
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Joined: Mon Feb 06, 2006 4:09 pm
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Post Tax breaks for small business in South Africa
Small businesses in South Africa have received further tax breaks, as well as an offer of tax amnesty, as part of the government's tax proposals in its 2006 Budget, unveiled on Wednesday in Parliament by Finance Minister Trevor Manuel.

The new tax reductions, estimated to cost the government approximately R400-million in the 2006-07 financial year, acknowledge the valuable role played by small businesses as part of the government's aims of stimulating economic activity, creating jobs, alleviating poverty and broadening development.

They follow the introduction of significant tax breaks in the 2005 Budget, which saw companies with a turnover of less than R6.0-million paying an effective corporate tax rate of 20 percent, substantially lower than the 29 percent rate for larger companies.

In terms of Manuel's latest proposals for small businesses, importantly they increase the qualifying annual turnover level to R14.0-million — from R6.0-million previously.

The taxable income threshold for the reduced corporate tax rate of 10 percent will be raised to R300 000 from R250 000, and the small business income tax exemption threshold will be increased to R40 000 from R35 000.

The one-time capital gains tax relief for small business will be lifted to R750 000 from R500 000 with effect from tax years beginning on or after March 1, 2006.

Immediate 100 percent depreciation exists for individual small items purchased for business purposes. This threshold will increase to R5000 from R2000 for assets purchased on or after March 1, 2006.

The VAT threshold for both small farmers and small business four-monthly filers will increase to R1.2-million from R1.0-million for tax periods beginning on or after July 1, 2006.

At the same time, the Finance Minister has unveiled a significant tax amnesty for small businesses currently operating outside the tax net — some tens of thousands across the country.

The Treasury did not have an estimate of the potential number of businesses involved, although many would have incomes below the current income tax threshold, a Treasury official confirmed.

"One of the aims of the amnesty is to afford those who have been historically marginalised an opportunity to regularise their tax status," Manuel told Members of Parliament.

The proposed amnesty will allow the South African Revenue Services (Sars) to waive taxes due by small businesses with turnovers of not more than R5-million for years of assessment ending on or before March 31, 2004. This wavier will require submission of an income tax return for 2005, as well as a non-disclosure penalty of 10 percent based on taxable income in 2005.

Sars would also waive penalties, additional taxes and interest on the underlying taxes due.

A two-phase approach has been proposed, with the first phase of the amnesty focusing on the taxi industry, since access to the taxi recapitalisation programme is dependent on tax compliance. The first phase would take effect from August 1, 2006 and be open until May 31, 2007.

The second phase of the amnesty for other small businesses would take effect later in the year, Manuel said, but would not necessarily wait for the first to have been completed before it began.

A Sars official said Sars would set up a separate unit within the organisation to deal with the amnesty, which would have a presence in Sars offices across the country, thus providing easy accessibility and dedicated services for businesses coming forward.

The amnesty would not be available to taxpayers who had already disclosed the amounts concerned, or who had been formally notified that they are under investigation before applying for amnesty.

Lynn Bolin
Wed, 15 Feb 2006
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Thu Feb 16, 2006 11:22 am
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