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How the 2011 Budget Speech Affects Your Business

Looking ahead, business owners can expect a number of improvements to the business environment.

Entrepreneur

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Minister of finance, Pravin Gordhan’s budget speech has, for the most part, been well received by the South African business sector.

The budget expands investment in modernising infrastructure and transport logistics, accelerating further education and skills development and supporting research, technology and industrial investment. Small businesses are promised targeted financial and enterprise development programmes and tax relief measures.

Small enterprise development initiatives are expected to be strengthened, including a focus on employment activation by the National Youth Development Agency.

Changes Affecting the Business Sector

Some of the most pertinent issues for the business sector include:

1. Income Tax:

  • Tax will be payable only on income above R59 750 for taxpayers below age 65, and R93 150 for those 65 and older.

2. Dividend Tax:

  • As indicated in previous years, a dividends tax will take effect on 1 April 2012, replacing the secondary tax on companies. Dividend schemes that undermine the tax base will be closed by treating the dividends at issue as ordinary revenue. These include dividend cessions, where taxpayers effectively purchase tax-free dividends without any stake in the underlying shares.

3. Venture Capital

  • Government introduced the concept of a venture capital company into the Income Tax Act in 2009, but the response has been poor. The approach will be refined so as to facilitate greater access to equity finance by small and medium businesses and junior mining companies.

4. Turnover Tax:

  • From March 2011, the turnover tax for micro businesses with annual turnover up to R1m will be adjusted so that tax will be payable only if turnover exceeds R150 000 a year. The rate structure will also be reviewed.
  • Also, from 1 March 2012, micro businesses that register for VAT will no longer be barred from registering for turnover tax.

5. Learnership Tax Incentive:

  • The learnership tax incentive, designed to support youth employment, will expire in September 2011. Government proposes to extend this for a further five years, subject to an analysis of its effectiveness with all stakeholders.
  • A youth employment subsidy is proposed. Subject to completion of consultations, it will take the form of a tax credit costing R5 billion over three years to be administered by the South African Revenue Service through the PAYE system.

6. Transfer Duty

  • The transfer duty exemption threshold will be increased from R500 000 to R600 000.

7. Levies

  • The general fuel levy will increase by 10 cents a litre on both petrol and diesel on 6 April 2011.
  • The Road Accident Fund levy will be increased by 8 cents to 80 cents a litre.
  • The levy on electricity generated from non-renewable and nuclear energy sources will increase by 0.5c/kWh to 2.5c/kWh from April 2011. According to Deloitte, some of this revenue will be set aside to fund the rehabilitation of roads damaged as a result of the haulage of coal for electricity generation. The increase should have no impact on electricity tariffs, as it has already been taken into account in the National Energy Regulator tariff structure.

8. Industrial Policy Action Plan

  • To support the objectives of the industrial policy action plan and the New Growth Path, certain investments qualify for tax relief (see below).

Support of Industrial & Economic Development

Additional allocations in support of industrial and economic development over the period ahead include:

  • R600m for enterprise investment incentives,
  • R735m for the Competition Commission and other economic regulatory agencies,
  • R250m to the Industrial Development Corporation to support agro-processing businesses,
  • R120m for the national tooling initiative,
  • R282m for the Micro-finance Apex Fund, and
  • R55m for Khula Enterprises to pilot a new approach to small business lending.

Employers Beware

Employers should also be aware of the following:

1. Contribution to Retirement Funds
The employer’s contribution to retirement funds on behalf of an employee is to be a taxable fringe benefit in the hands of the employee. Sumay Dippenaar, marketing specialist of Softline Pastel Payroll explains that individuals will be allowed to deduct up to 22,5% of the taxable income for contributions to pension, provident and retirement annuity funds, with a minimum annual deduction of R12 000 and an annual maximum of R200 000.

2. Employer Lump Sum Benefit
Another positive, says Dippenaar, were the changes to employer lump sum benefit taxation. From 1 March, retrenched workers receiving a lump sum will be subject to special rates for lump sums provided by an employer or funds withdrawn from pre-existing retirement funds up to the R315 000 exemption level, meaning they could obtain R345 000 tax free.

3. Company Cars
“A significant change is the manner in which the value of company cars will be determined,” said Grant Lloyd, managing director of Pastel Payroll, part of the Softline Group and Sage Plc Group. “In the new tax year the value will be the cost of the car, excluding finance and interest charges. This means that VAT and any maintenance plan purchased is included in the original cost and company car values will have to be re-calculated from 1 March.”

4. PAYE
There are also new tax reconciliation facilities for employers to assist in the reconciliation of PAYE transactions. One of the facilities is the Employer Statement of Account (EMPSA) and the other is the Reconciliation Assistant. Lloyd said EMPSA has the potential to help employers take control of their PAYE account at SARS. “It is structured for problem solving as problems occur, so there is no sudden panic at year end. Employers will no longer be able to submit an EMP501 on which the EMP201 liabilities, the EMP 201 payments or the tax totals from the tax certificates do not balance as has been possible in the past. The system will force employers to correct the areas that do not balance in the Reconciliation Assistant.

Gordhan reiterated that small businesses are an important source of jobs. Businesses that employ fewer than 50 workers account for 68% of private sector employment. “We need to get our small business sector growing,” he said.

Resources:

1)    For more information about the budget speech visit:

2) Tax calculator:

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Tax

7 Direct And Indirect Taxes You Should Consider Before Registering Your Business

Tax planning is critical for us all more so for the success of your newly registered entity.

Kenlin Stride

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If your business has been registered, guess what in the eyes of the law your business is now a legal entity, congratulations. What does this mean? Well this means your business is a distinct legal entity separate from you in the eyes of the law, this means your business can now enter into contracts to purchase assets, utilise debt instruments and hire staff amongst other things. This unfortunately also means your business is subject to tax compliance. Let me try and give you a snapshot of what taxes to be aware of as a business owner however not all will automatically be applicable to your business.

1. Income Tax

Income tax is one of the state’s main sources of revenue and is levied on taxable income determined in terms of the Income Tax Act. All businesses must be registered for Income Tax. It is illegal not to be registered for Income Tax if you have a business.

2. Provisional Tax

The payment of provisional tax is to assist taxpayers in meeting their tax liabilities by way of installments out of their taxable income. Income tax is only paid once the full 12 months of trading is complete. It would be impractical to expect taxpayers to pay one large lump sum of income tax to SARS. Companies automatically fall into the provisional tax system.

Related: Tax Basics For Business Owners

3. Small Business Corporations Tax

SBC Tax was introduced as a tax relief measure for small business. SBC Tax will not be calculated on the flat 28% of taxable income. Dependent on your annual taxable income, you will be liable at the percentages in the table.

4. Pay As You Earn

Employees’ tax refers to the tax required to be deducted by an employer from an employee’s remuneration (salary) paid. The process of deducting or withholding tax from remuneration as it is earned by an employee is commonly referred to as PAYE.

5. Value Added Tax

This is an indirect tax levied on the ‘sale’ and ‘purchase’ of goods and services. This tax is not compulsory unless your turnover has exceeded R 1 000 000 mark however you choose to register voluntarily if it makes sense for your business strategy.

Related: How to Reduce Your Taxable Income

6. Unemployment Insurance Fund

UIF contributions are compulsory for all employees working more than 24 hours a month. The contributions are paid to the Department of Labour (DOL), or can be included in the SARS payment of PAYE on the EMP201

7. Workman’s Compensation

An employer must register with the Commissioner within seven days after the day on which he employs his first employee, (this includes the Director or Owner of the company)

You might be thinking tax compliance, what’s the big deal? I’ve been doing that most of my adult life, well personal tax is very different to business tax. As the director of your newly registered business it is assumed that you have done the research as to what laws to comply with as a business owner. In reality however the thrill of having a business overshadows the mundane compliance elements that go hand in hand when running a business. Let’s face it as much as your business is now a legal entity your business won’t do the research and comply with the necessary taxes on its own that responsibility lies with the director and when I say director I mean you.

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Tax

Tax Refunds – What You Need To Know

You are able to object/dispute any SARS decision not to release the refund on efiling or through your tax practitioner.

Maselaelo Mphela

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Most taxpayers are not aware of the requirements for a tax refund to be facilitated and SARS very often will delay paying out the refund. In this article, we will look at the requirements taxpayers need to be aware of and the Tax Ombud’s report on the investigation into alleged delayed payment of refunds as a systemic and emerging issue in terms of section 16 (1) (b) of The Tax Administration Act No. 28 of 2011 (TAA).

What you need to know as a taxpayer:

  • The tax refund must be claimed within 5 years from date of submission of the return.
  • SARS has the right to withhold the refund as per section 190 (2) of TAA: “SARS need not authorise a refund as referred to in subsection (1) until such time that a verification, inspection or audit of the refund in accordance with Chapter 5 has been finalised.”
  • Authorisation of payment of refund done once SARS is satisfied with the acceptable security provided by the taxpayer in terms of section 190 (3) of TAA: “SARS must authorise the payment of a refund before the finalisation of the verification, inspection or audit if security in a form acceptable to a senior SARS official is provided by the taxpayer.”
  • As a taxpayer, you need to ensure that you verify your banking details with SARS and that there are no outstanding returns in order for your refund not to be delayed.
  • Any decision not to refund by SARS is subject to an objection and appeal by the taxpayer in terms of section 190 (6) of TAA.
  • Refunds less than R100 are not refunded but carried forward to the next tax period.
  • To view the status of your refund you can use the Refund Dashboard on efiling under the ‘Returns History’ tab for the tax period in question or contact the SARS call centre.
  • Interest starts accruing from 21 business days from the date on which the refund became due, i.e. verification/audit outcome finalised.

Related: Tax Basics For Business Owners

Tax Ombud’s Report

The Tax Ombud’s report identified various mechanisms used by SARS to defer or delay the payment of refunds due:

  • SARS failing to link submitted supporting documents at a SARS branch to the main file.
  • The use of special stoppers on taxpayers’ accounts and the delay in lifting the stoppers, e.g. being required to verify banking details in person at a SARS branch. Even after the verification is done, there is still a lengthy delay in paying the refund.
  • Using the filing of new returns as an excuse to block refunds. The system blocks already verified refunds the moment a subsequent return is submitted by the taxpayer.
  • Withholding of refunds for one period while an audit/verification is in progress on another period. This is contrary to section 190 of the TAA.
  • The use of historic returns suddenly reflecting as outstanding but these have never been shown as outstanding on the Tax Clearance Certificate or the Statement of Account.
  • The raising of assessments and passing of journals to absorb credits on taxpayers’ accounts, i.e. overpayments. In doing so, SARS creates fictious tax liabilities instead of making a decision on the refund.
  • Requesting further information during the audit to delay finalisation, thus delaying the time frame from when the interest accrues.
  • No turnaround time for assessments successfully disputed.
  • Obstacles regarding diesel refunds.
  • Raising of assessments prematurely before the 21 days to submit the supporting documents
  • Refunds for periods that have been verified automatically set-off against bad debts on other periods not withstanding a request for suspension or where there is the suspension of payment. SARS may not instate any collection steps from date of submission of request for suspension of payment until 10 days after decision to not grant the request has been communicated to the taxpayer in terms of section 164 (6).

You are able to object/dispute any SARS decision not to release the refund on efiling or through your tax practitioner.

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Company Posts

Reimagine The Use Of Technology

The phenomenon of ‘big data’ is rapidly catching up with the world of tax.

PwC

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As tax professionals we live in a new reality, fueled by the blinding pace of change. The digital revolution is here. Reimagine the future of the tax function through the lens of analytics.

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