Turnover Tax vs Company Tax: Which is Right for You?

Small business owners in South Africa often struggle with tax compliance. To ease this burden, SARS introduced Turnover Tax as a simplified alternative to standard Company Tax. But is it the right choice for your business? Let's compare them.

What is Standard Company Tax?

Standard Company Tax applies to most registered companies (like Pty Ltds). The company is taxed on its taxable income (Profit = Income - Deductible Expenses).

• Tax Rate: A flat rate of 27% on taxable income.
• Complexity: Requires detailed bookkeeping to track all income and expenses accurately.
• Other Taxes: The company may still need to register for VAT (if revenue exceeds R1 million), PAYE, and Provisional Tax separately.
• Advantage: If the company makes a loss, it pays zero tax, and the loss can often be carried forward to offset future profits.

What is Turnover Tax?

Turnover Tax is a simplified tax system designed for micro-businesses with a qualifying turnover of less than R1 million per year. Instead of taxing profit, it taxes your total revenue (turnover).

• Tax Rate: Progressive sliding scale based on turnover. The first R335,000 is tax-free. The rates are very low (e.g., 1% to 3% on amounts above the threshold).
• Simplicity: It replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax, and Dividends Tax in a single system.
• Bookkeeping: Requires minimal record-keeping (just a record of cash received).
• Disadvantage: Because it taxes revenue, you pay tax even if your business is running at a loss or has very low profit margins.

Small Business Corporations (SBC)

It's also worth noting the SBC tax regime. If your company qualifies as an SBC (turnover under R20 million and other strict criteria), you still calculate tax on profit, but you get access to a heavily discounted sliding scale rather than the flat 27%. This is often the "sweet spot" for growing small businesses.

Which Should You Choose?

Choose Turnover Tax if your turnover is under R1 million, your profit margins are high, and you want to minimize accounting fees and administrative hassle.

Choose Standard Company Tax (or SBC) if your business operates on low profit margins, you expect to make losses in the early years, or your turnover exceeds (or will soon exceed) R1 million.