How you reacted to Finance Minister Nhlanhla Nene’s maiden budget speech near the end of February would have depended on who you are. As a personal income tax payer, you may have been disappointed to hear that tax in this bracket was increased by 1% for all except those falling into the lowest threshold of R181 900 or less. As someone looking to buy property you may have been pleased to hear that transfer duty for houses costing less than R2.3-million has been decreased. As a consumer, you would have been disappointed to hear that sin taxes in almost all categories were on the up.
But as a small business owner, the news was all good. The government is aiming to provide relief by way of business tax to small businesses and entrepreneurs, and increasing tax incentives for energy efficiency as well.
So what exactly is being proposed by the national treasury?
Increased thresholds for small business tax
The good news comes in terms of business tax for companies with a turnover of less than R1-million. The minister aims to please small businesses by proposing that business tax only be imposed from a turnover threshold of R335 000 or more.
Up to this point, the company income tax exemption threshold has only been applicable for businesses with an annual turnover of R150 000 or less. Nene therefore more than doubled the threshold by announcing that all companies with a R335 000 turnover or less will no longer be required to pay company income tax.
Companies with a turnover of between R335 000 and R500 000 will now only be liable for 1% business tax on the income earned above the threshold. For example, say your company has a turnover of R370 000 per year. The first R335 000 is tax free. Then 1% company income tax applies to the amount exceeding the threshold. In our example, 1% of the excess – that is, 1% of R35 000 — is payable to the South African Revenue Service (SARS).
If your company has a turnover of between R500 000 and R750 000, your business tax will be at a rate of 2% for the income above the threshold.
If you have a turnover of between R750 000 and R1-million, your business tax will be 3% for the earnings above the threshold.
The move was recommended by the Davis Tax Committee, which is currently conducting a large-scale probe into the tax and retirement structures and regulations in the country. Most analysts agree that it’s aimed at bolstering start-ups and energizing entrepreneurship in the country. “This will provide relief to start-up entities and thus, in our view, will encourage more entrepreneurs to enter into business ventures,” Lizette Wiese and Thandi Sobhuza, assistant tax managers at EY, told Fin24.
The maximum rate for business tax has also been reduced from 6% to 3%.
Increased rebates for energy efficiency
And the government is also aiming to reward companies that are focusing on being energy-efficient. There will be an increase in the “energy efficiency savings incentive” from 45 cents per kilowatt hour to 95 cents per kilowatt hour. According to treasury, this programme allows businesses to claim a tax rebate based on proven energy savings. “It’s one of the carrots that will help businesses adjust to the carbon tax that will be implemented in 2016,” a treasury official told the Mail & Guardian.
While the relief is unlikely to be enormous, small businesses that have sizeable operational costs, could see significant decrease in running costs if they play it right.
No doubt partially in response to an urgent need to boost economic output, it appears that government is striving to be cognizant of the many hurdles faced by small businesses in the country.
Its effort to reduce the business tax burden on startups and to incentivize “cleaner” businesses show two indications of what will hopefully become a policy shift towards truly enabling entrepreneurial activity in the country.
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