Turnover Tax in South Africa: A Guide for Small Businesses

Turnover tax is a simplified tax regime for qualifying micro-businesses under section 48 of the Income Tax Act. Instead of calculating taxable income, businesses pay tax based on total annual turnover using a tiered rate table - with no deductions for business expenses allowed (SARS: Turnover Tax, 2024). The simplicity is the trade-off: if your business has high expenses relative to income, normal income tax may be more efficient.

Key Takeaways

Turnover tax applies to qualifying micro-businesses below the prescribed turnover threshold - verify the current limit at sars.gov.za.

Tax is calculated on gross turnover, not profit - no expense deductions are available.

Businesses with high expense ratios should compare both options before registering.

Provisional payments (IRP6) are still required under turnover tax - it simplifies calculation, not compliance.

Who qualifies for turnover tax?

To qualify under section 48 of the Income Tax Act 58 of 1962 (legislation.gov.za), a business must:

Have qualifying annual turnover below the prescribed SARS threshold - confirm the current limit at sars.gov.za/businesses-and-employers/small-businesses/turnover-tax/.
Meet business type requirements - natural persons (sole proprietors), personal liability companies, close corporations, and certain co-operatives may qualify.
Not be excluded by the nature of activities. Excluded businesses include: professional service providers (lawyers, doctors, accountants, consultants), businesses whose income derives mainly from professional services by a connected person, and investment-focused businesses.

Businesses above the threshold, or those excluded by activity type, must use the standard income tax system regardless of how much simpler turnover tax would be.

How turnover tax is calculated

Turnover tax uses a progressive rate table applied to annual qualifying turnover. Lower turnover brackets are taxed at lower rates. Verify the current rate table at sars.gov.za before filing - SARS updates rates periodically.

No deductions for business expenses are allowed under the turnover tax regime. The simplified rate structure is designed to compensate for the absence of deductions. If your operating costs are significant relative to your revenue - for example, a business spending R600,000 in expenses to generate R1,000,000 in revenue - the net taxable income under normal tax would be only R400,000, while turnover tax applies to the full R1,000,000.

What is excluded from the turnover base

Certain amounts may be excluded from the turnover calculation (SARS: Turnover Tax):

Proceeds from the disposal of fixed assets (capital receipts).
VAT collected where the business is also a registered VAT vendor (though most micro-businesses are below the VAT threshold).

Turnover tax and VAT

Most businesses registered under the turnover tax regime are below the mandatory VAT registration threshold. Voluntary VAT registration alongside turnover tax registration is generally not allowed. If your taxable supplies exceed the compulsory VAT threshold, VAT registration is required and will affect your turnover tax position.

Provisional tax under turnover tax

Businesses registered for turnover tax still make provisional tax payments. The IRP6 form is used to estimate qualifying turnover and calculate the provisional amounts due during the year. Payments are due at the standard provisional tax deadlines - end of August (first period) and end of February (second period) (SARS: Provisional Tax).

Comparing turnover tax vs normal income tax

Before registering for turnover tax, model both calculations for your specific business:

Under turnover tax: apply the rate table to your total qualifying turnover.
Under normal income tax: apply the income tax rates (or SBC rates if you qualify as an SBC) to your net taxable income after deducting allowable business expenses.

If you have high expenses relative to revenue, normal income tax typically produces a lower liability. If your business has low overheads and consistent margins, the turnover tax simplification may save administrative time without costing materially more in tax.

Common mistakes

Assuming turnover tax is always cheaper. It depends entirely on the relationship between your revenue and expenses. A service business with minimal costs may pay more under turnover tax than under normal income tax on net profit.

Not checking whether your activity qualifies. Professional service businesses and investment-focused businesses are excluded. Using turnover tax when you’re excluded is a compliance error.

Forgetting that provisional payments are still required. Turnover tax simplifies the rate calculation - it doesn’t eliminate IRP6 filing obligations.

Frequently Asked Questions

Can I deduct business expenses under the turnover tax regime?

No. Tax is calculated on gross qualifying turnover, not profit. No deductions are allowed. This simplicity is the distinguishing feature of the regime. If your business has significant expenses - staff, rent, equipment - the normal income tax system, where those expenses are deductible under section 11(a) of the Income Tax Act, may result in a lower tax liability.

Do turnover tax businesses still pay provisional tax?

Yes. Businesses registered under turnover tax make provisional payments using the IRP6 form, estimating qualifying annual turnover. Payments are due at the same deadlines as provisional tax for normal taxpayers - end of August and end of February. The simplified rate calculation doesn’t eliminate the provisional payment obligation.

Can a turnover tax business register for VAT?

Generally no. Voluntary VAT registration alongside turnover tax registration is not allowed under standard rules. If taxable supplies exceed the compulsory VAT registration threshold, registration is required - and this affects the turnover tax position. Speak to a tax practitioner if your turnover is approaching both the VAT and turnover tax thresholds simultaneously.

How do I know if my business qualifies for turnover tax?

Check three things: (1) Is your qualifying annual turnover below the SARS threshold? (2) Are you the right type of entity - sole proprietor, personal liability company, close corporation, or co-operative? (3) Is your main activity excluded - professional services, investment, or activities through connected persons? Confirm all three conditions for the current year at sars.gov.za.

Sources

SARS: Turnover Tax - qualifying conditions, rate tables, and registration process
Income Tax Act 58 of 1962, section 48 - the legislative basis for the turnover tax regime
SARS: Provisional Tax - IRP6 obligations that apply even under turnover tax

This guide is for general educational purposes. Verify current qualifying conditions and rate tables with SARS or a registered tax practitioner before registering or filing under the turnover tax regime.