Turnover Tax – For Micro Businesses (SA)
Pros & Cons Explained Simply**
If you’re running a small business in South Africa — especially a startup, side hustle, or informal business transitioning into formal compliance — you may have heard about Turnover Tax.
It’s one of the simplest tax systems for micro businesses, but it’s not for everyone. Before choosing it, you need to understand exactly how it works, and whether it benefits your business.
Here’s a clear, practical breakdown.
What Is Turnover Tax?
Turnover Tax is a simplified tax system designed for very small businesses with a turnover of R1 million or less per year.
Instead of paying tax on profit, you pay tax on total sales (turnover).
This system replaces:
- Income Tax
- Provisional Tax
- VAT (if not registered for VAT)
- Capital Gains Tax (CGT)
It was specifically created to make compliance easier and cheaper for micro enterprises.
Who Qualifies?
Your business can apply for Turnover Tax if:
✔ Your annual turnover is R1 million or less
✔ You are a sole proprietor, partnership, close corporation, cooperative, or (Pty) Ltd
✔ You are not a personal services provider
✔ You are not a professional (e.g., accountant, lawyer, doctor)
✔ You are not doing business in the long-term insurance industry
✔ You are not a public benefit organisation (PBO) or NPO earning mainly donations
How the Tax Works
You pay tax at very low rates, starting from 0% and going up depending on your total annual turnover.
For example:
If your business makes R200,000 in turnover, you might pay less than R1,000 in tax for the entire year.
It’s designed to be simpler than the standard tax system.
PROS of Turnover Tax
1. Very low tax rates
Many micro businesses pay much less tax under this system.
2. Easy compliance
No complex financial statements.
You submit only a simple turnover declaration.
3. Ideal for low-expense businesses
If you don’t have many deductible expenses, this system works well because profit does not matter — only turnover does.
4. No provisional tax
You avoid the stress of complicated provisional tax calculations.
5. Encourages small businesses to enter compliance
SARS designed it to help new businesses become compliant without heavy admin.
CONS of Turnover Tax
1. You pay tax even if you make a loss
Because tax is based on turnover, not profit.
Example:
You earn R300,000 turnover but spend R280,000 in expenses.
Profit = R20,000, but you still pay turnover tax on R300,000.
2. Not suitable for high-expense industries
Businesses with large costs (fuel, equipment, materials) may pay more under this system.
3. No tax deductions allowed
You can’t deduct:
- Fuel
- Rent
- Advertising
- Equipment
- Repairs
- Salaries
- Travel
- Vehicles
All the deductions available in the normal system are lost.
4. You still must keep records
Even though it’s simpler, SARS still requires:
- Sales records
- Bank statements
- Expense proof
- Basic bookkeeping
5. Once you go over R1 million, you must exit
If your business grows, you automatically leave the system and must switch to normal tax.
Who Should Use Turnover Tax? (Good Fit)
Turnover Tax is great for:
✔ Street vendors
✔ Small online sellers
✔ Freelancers with low expenses
✔ Home-based businesses
✔ Small service businesses
✔ Micro hustles making less than R1 million per year
Who Should Avoid Turnover Tax? (Bad Fit)
Avoid it if you have:
✖ High operating costs
✖ Employees
✖ Vehicles or equipment that need depreciation
✖ Large monthly expenses
✖ Plans to register for VAT
✖ Profit margins below 30%
These businesses often pay less tax under the normal system.
Final Thoughts — Is Turnover Tax Right for You?
Turnover Tax can save you money if your business is small, simple, and low-cost.
But it becomes expensive for businesses with high expenses or plans to scale.
If you’re unsure which system is better, compare:
👉 Your yearly turnover
👉 Your yearly expenses
👉 Your profit margin
As Creative Bookkeepers, we can help you calculate which tax system saves you the most money — and ensure you stay 100% compliant.
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