As part of its broader initiative to encourage and support small-business development, the South African government has granted further income tax relief for the sector in the 2005 Budget, as well as extending the category of eligible small businesses to include personal services and manufacturing, according to Minister of Finance Trevor Manuel.
Presenting the government’s 2005/06 Budget in Parliament on Wednesday, Manuel said the proposed measures should significantly increase cash flow for small businesses, contributing to the surplus available for reinvestment, thereby supporting business growth and employment.
First, the category of small business companies eligible for relief will be expanded to cover personal services, he said, in recognition of their prominence as an engine of growth within the wiser small-business sector.
Small businesses primarily engaged in the provision of personal services will now be fully eligible for relief, as long as they maintain at least four full-time employees for core operations.
Secondly, the turnover limit fore eligible companies will be increased to R6-million from R5-million currently.
Thirdly, under the new regime, qualifying small business will be able to have the first R35Â 000 of taxable income tax-free. After that, income up to R250Â 000 will be taxed at a preferential rate of 10%, (previously 15%), and income above R250Â 001 will be taxed at a rate of 29%.
Fourth, small businesses will also benefit from a simplified and enhanced depreciation regime to encourage fixed capital formation. These companies will now be eligible for a depreciation write-off at a 50:30:20 percent rate over a three-year period for all depreciable assets, while manufacturing assets will retain their immediate 100% write-off.
The current R20Â 000 double deduction for start-ups will be removed, in view of the new improved tax rate structure.
The rate adjustments, and the inclusion of personal services, will take effect from April 1 2005.
Fifth, the government has decided to raise the threshold at which companies pay the skills development levy, to a payroll of R500Â 000 from R250Â 000 previously.
Currently, businesses with a payroll of more than R250Â 000 per year or with at least one employee registered for PAYE are required to account for the skills development levy. As part of relief for small businesses, this payroll threshold will be increased to R500Â 000 and the requirement of one employee dropped, with effect from August 1.
Finally, the government will allow small businesses with a turnover of less than R1-million to file a value-added tax (VAT) return every four months, instead of the current two-monthly filing period.
Also as part of the small business initiative, the South African Revenue Service (Sars) has announced a raft of measures to reduce tax compliance costs and red tape, as well as assist small business in their start-up phase and provide tax education and assistance. These measures are part of a wide-ranging three-year programme of administrative measures to support small businesses.
Interventions to be undertaken by Sars include: the use of community tax helpers; the establishment of small-business help desks; accounting and payroll packages for small businesses; a VAT package for small retailers; and a focus on VAT education.
The small retailers VAT package, announced in the 2004 Budget, will be ready for implementation on April 1, Sars said. This will provide for a simplified method of accounting for VAT for businesses with a turnover of less than R1-million, mainly in the retail sector, that do not have access to cash registers that can distinguish between zero-rated and standard-rated sales. — I-Net Bridge