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.
- 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 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.”
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.
1) For more information about the budget speech visit:
- Deloitte’s predictions and insights into the budget
- Grant Thornton’s analysis of the budget speech
- Old Mutual’s take on the budget speech is available online
- Pastel Payroll offers useful tools and tables on the budget speech
2) Tax calculator:
- To find out how the budget speech affects your pocket, visit the Pastel Salary Tax Calculator and enter your current monthly salary and allowances
Silver Linings For Smaller Businesses In Budget 2018
As expected, the Finance Minister and Treasury have proposed some tough measures to address South Africa’s tax collection shortfall, growing budget deficit, and new spending priorities in the 2018 Budget Speech. Sage software can ensure your business remains compliant through these upcoming changes.
Higher VAT, fuel levies and import duties on luxury goods will crimp consumer spending, which could be bad news for SMEs, but we are pleased that the Finance Minister has raised his GDP growth projections and proposed interventions to help grow South African SMEs.
Government is taking steps to restore fiscal credibility, rein in spending, and hold off another credit ratings downgrade, such as:
Growth, reviewed competition policy and improved market access
The hopes and concerns of entrepreneurs and SMEs were extensively covered, including how low market access and high barriers to entry are constraining the growth of the country’s SMEs.
While government will take action against anti-competitive behaviour that harms these businesses, big businesses should also play a constructive role in nurturing the growth of SMEs through mentoring and partnership.
An increase in SME funding
The Departments of Small Businesses and Science & Technology and the National Treasury developing a R2,1 billion fund to benefit SMEs during the early start-up phase is good news, but it’s important that the funding is spent efficiently and productively.
We’d like to hear more details about how government will choose to allocate this money.
A shift in public procurement participation
Government using public procurement to support Black Economic Empowerment, industrialisation and development of SMEs see its billions of rand in procurement spend used to empower SME owners — we look forward to more details about how government will increase participation of small and micro businesses in procurement opportunities.
It’s also critical that government follows through on its promise to pay small businesses within 30 days of invoicing. Cash flow is a major challenge for small businesses and few of them can afford to wait three to six months for payment on a big project.
The rise in the VAT rate
The VAT hike will take some money out of people’s pockets, but will probably have less impact on business confidence than higher corporate taxes, and less impact on consumer spending than further personal tax increases.
SMEs will need to ensure their systems are ready to cater for the new VAT rate, but this should not be too much of a challenge for those with automated accounting systems. By international standards, VAT in South Africa is still relatively low — we can just hope that this increase is not followed by another in the next year or two. n
Managing the VAT Transition
The VAT Act stipulates that the time of supply will be either when an invoice is issued or when payment is received — whichever happens first. For example, if you invoice for a sale on 31 March but are only paid on 30 April, the VAT rate of 14% will apply. If you receive payment on or after 1 April but have not yet invoiced for the sale, then VAT should be charged at 15%.
Cloud-based, automated accounting solutions, like Sage One, were VAT-ready on 1 April.
Businesses using these solutions don’t have to worry about staying on top of the different VAT rates because the system will automatically generate the correct VAT invoice, quote and debit or credit note.
The VAT Act states that displayed pricing and adverts must include VAT (unless the product is zero-rated). You have until 31 May to complete this work. Until then, you can display a notice at the till point, stating that prices do not include VAT at the new rate and will be adjusted at the tills. But why delay and risk confusing your customers?
The next VAT201 return you submit to SARS will be more complicated because you will need to calculate input and output tax at different rates, not to mention the apportionment rate that will need to be calculated for contracts and services taking place before and after 1 April. If you’re using manual processes, you might need to consult an accountant to make sure you’re not over or under reporting VAT on your reconciliations.
Reimagine The Use Of Technology
The phenomenon of ‘big data’ is rapidly catching up with the world of tax.
Get Your Small Business VAT-Ready Without The Headache
On 1 April 2018, Value-Added Tax (VAT) will increase for the first time in 25 years, from 14% to 15%. Viresh Harduth, Vice President: New Customer Acquisition (Start up and Small Business) at Sage Africa & Middle East, guides this transition.
If you’re a small business owner, it’s likely that you’ve never had to deal with a change in the VAT rate before and don’t know where to start to get your systems and processes VAT-ready, without impacting your cash flow and operations.
Here are a few tips to get your small business VAT-ready, come 1 April:
Test your operation
If you are a small business that still uses manual processes like spreadsheets to calculate and record VAT, consider creating dummy sheets and invoices to ensure you are processing the additional VAT correctly and that you can process transactions at 14% on 31 March and 15% on 1 April.
Also consider that, if a customer returns a product on 1 April that they bought on 31 March, it will need to be refunded at the old VAT rate.
NOTE: From 1 April, all receipts, invoices, quotes, adverts, credit and debit notes must reflect the new rate, so test your systems beforehand to make sure there aren’t any errors.
Understand time of supply
The transaction date, or time of supply, is probably the biggest consideration for businesses when applying VAT to sales. The VAT Act stipulates that the time of supply will be either when an invoice is issued or when payment is received – whichever happens first.
For example, if you invoice for a sale on 31 March but are only paid on 2 April, the VAT rate of 14% will apply. If you receive payment on 1 April but have not yet invoiced for the sale, then VAT should be charged at 15%.
NOTE: Consult the VAT Act for rate-specific rules applicable to contracts and supplies starting before and ending on or after 1 April.
Automate where possible
Cloud-based, automated accounting solutions, like Sage One, will be VAT ready, come 1 April. Businesses using these solutions don’t have to worry about staying on top of the different VAT rates because the system will automatically generate the correct VAT invoice, quote and debit or credit note.
NOTE: All transactions are stored and readily accessible in the cloud, from anywhere, ensuring businesses are compliant with SARS and VAT laws.
Educate your colleagues
It’s crucial that your team members know how to raise invoices and credit notes that are processed before and after 1 April, and how to process refunds for sales that occurred before this date, as these will attract different VAT rates.
Adjust your pricing
The VAT Act states that displayed pricing and adverts must include VAT (unless the product is zero-rated). Some small businesses might want to close shop for the day to adjust their shelf and online pricing to reflect the new rate in time for the new business week on Monday.
However, those that are unable to do this can display a notice at the till point, stating that prices do not include VAT at the new rate and will be adjusted at the tills.
NOTE: This grace period is only in place until 31 May, after which all pricing must include the new rate.
Check your own quotes and invoices
Any quote or invoice you receive for stock purchased after 1 April should reflect the new VAT rate. You’ll need to submit this documentation when claiming input tax. If your supplier does not calculate VAT correctly, you will be liable for the shortfall, which could impact your cash flow.
NOTE: You will also incur penalties if you under- or over-declare VAT on your VAT201 return – another reason why automating the accounting process is a good idea.
Get reporting ready
The next VAT201 return you submit to SARS will be more complicated because you will need to calculate input and output tax at different rates, not to mention the apportionment rate that will need to be calculated for contracts and services taking place before and after 1 April.
NOTE: Again, automated solutions can take care of this for you but, if you’re using manual processes, you might need to consult an accountant to make sure you’re not over or under reporting VAT on your reconciliations.
Complying with the new VAT rate is a massive administrative task for businesses of all sizes – and they don’t have much time to prepare. To find out how Sage can help your business with compliance, click here.
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