Turnover tax is a simplified, presumptive tax system specifically designed for qualifying micro businesses in South Africa, governed by the Sixth Schedule to the Income Tax Act No. 58 of 1962. It replaces four separate tax obligations with a single, streamlined tax calculated on gross receipts rather than taxable income:
- Normal income tax
- Provisional tax
- Capital gains tax (on business assets)
- Dividends tax (on distributions up to a set annual limit)
Because turnover tax is levied directly on annual turnover rather than taxable profit, no deductions are permitted for business expenses such as rent, stock, salaries, or capital equipment.
Who Qualifies for Turnover Tax?
To register for turnover tax, a business must operate under one of the following legal structures:
- Sole proprietor
- Partnership
- Close corporation (CC)
- Company
- Co-operative
Qualifying Conditions:
- Qualifying turnover of R2.3 million or less per financial year (increased from the previous R1 million threshold).
- For companies and close corporations, all shareholders or members must be natural persons.
Excluded Activities
Certain trades and business activities cannot elect to pay turnover tax, even if their total annual turnover remains below the R2.3 million threshold. Excluded activities include:
- Professional service providers (e.g. consulting, legal, accounting, engineering services)
- Labour brokers (without a valid exemption certificate)
- Personal service providers
- Certain other excluded trades specifically listed in the Sixth Schedule to the Income Tax Act
"Turnover tax provides qualifying small businesses with simplified record-keeping and tax compliance, replacing multiple complex tax filings with a single turnover-based assessment."
If you're unsure whether your micro business qualifies for turnover tax or whether it is the most tax-efficient option for your situation, contact the Tax Solution team to schedule a personal consultation.