Tax Trickery

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Death and taxes may be certain, but living and paying as little tax as possible is much less macabre.  One’s inclination to pay tax dwindles somewhat when one thinks of the extravagance and exuberance displayed by our number one citizen in what they often call his “homestead”.  Perhaps rather a small city or a harem hotel, but I digress.

Tax!  It would be imprudent not to tell you to register your business, apply for a tax number and pay tax, but it would be nice if we could restrict the fire pool at Nkandla to a 25 metre rather than an Olympic-sized fire pool.

The first and the daftest tax solution is turnover tax.  This tax replaces income tax, VAT, provisional tax, capital gains tax and dividends tax, so it looks promising at first glance but government is a wolf in sheep’s clothing as it works almost like a franchise.  You pay a fixed percentage whether you make money on your bottom line or not.  Currently suckers all over our country pay turnover tax.  Admittedly there are a few businesses that could benefit, like a profitable company with low cost of sales and little expenses.  But companies with medium to high cost of sales and normal expenses suffer like a beetle on its back on a wooden floor.

SARS isn’t stupid either.  They cleverly decreed that only businesses with a turnover under R1 million qualify for turnover tax.  And, one only has to register for VAT once you’ve hit the R1 million turnover mark…

Company tax is at 28% (plus a dividend withholding tax of 15% – if you don’t know what dividend withholding tax means it is still irrelevant for your business).   Personal tax scrambles past 28% once your business pays you R43,750 per month or more.  It is therefore clever if your business can pick up grey expenses to stay under the 28%.  Grey expenses are semi-personal expenses that your business is allowed to pay on your behalf.

Hanno van Zyl, business consultant at ZylsNtlati SME Advisory, encourages all small business owners to “work smarter and not necessarily harder” by investigating all possible tax relief options.  One of the strongest tax relief incentives for entrepreneurs is a Small Business Corporation or SBC.   By registering an SBC you immediately allow your business to clock a net taxable income (net profit before tax) of up to R67,111 before Pravin even raises an eyebrow.  For the next R 297,889 of taxable net profit, you get away with a measly 10% tax, which translates to an effective tax rate of a measly 5.72% on your first R365,000.  The relief goes on to a figure of R550,000 for the 2013/2014 tax year.

“Boohahahahahah,” I hear you laugh, but there’s a catch.  You have to employ three or more employees in the business (“Come Ouma, Liesbet, we’re starting a business”) and professional service providers, i.e. auditing and legal firms are excluded. Companies that derive more than 30% from their income through Investments alone are also disqualified. Unfortunately you are forced earn an honest dollar.  

In the government’s defence, some good murmurings are rippling from the office of Minister Rob Davies, lead singer of Kings of Trade and Industry.  They are looking to appoint a minister especially for SMMEs (to be paid with our tax bucks) and to radically reduce red tape.

So, brace yourselves because good things are on its way.  In the meantime, keep our commander-in-chief honest by paying him not a cent more that he deserves and restricting his faucets to Cobra rather than Tivoli.