Should small businesses fear the 2017/18 budget? Renier Nell, master tax practitioner and director of accounting and tax firm Innovative Accounting Solutions, attempts to answer the question.
High and middle income earners are hearing a stream of bad news as the 2017 – 2018 Budget Speech by finance minister Pravin Gordhan approaches. Analysts are predicting high earners will bear the burden of tax increases in order to plug the R28-billion funding gap in the fiscus that was highlighted in Gordhan’s medium-term budget. The shortfall stems from lower-than-expected economic growth.
Predictions are that Gordhan may further increase the top marginal income tax rate, as well as hiking capital gains tax and estate duty. By simply declining to give the customary relief from fiscal drag, as he did in last year’s budget, Gordhan could secure as much as R15-billion extra. Fiscal drag occurs when inflation-linked salary increases shift people into brackets with higher effective tax rates.
Other less obvious ideas being punted include imposing a sugar tax, a possible surcharge on companies and high net worth individuals, as well as further hikes in the fuel levy and excise taxes. The easiest route to raise a large amount of extra revenue is by — hiking the rate of value added tax (VAT) – which is apparently not under consideration.
Taxpayers can counter any increase in their tax burden by looking more closely at what they are already paying. For instance, we find in our practice that many small business owners are paying 18 percentage points more tax than they ought to. They are simply not aware that their business may qualify for the small business corporation tax rate of 10% rather than the corporate tax rate of 28%.
It is easy to qualify for the lower tax rate: the company director must be director of that business only and no other. Secondly, the firm’s annual turnover must be less than R20-million, and the director or the firm cannot have investments anywhere of more than R20-million. Many poorly-advised entrepreneurs simplistically believe that if they’re a company, they must pay the 28% corporate tax rate.
One cannot be meek when taking on the South African Revenue Service. Tax is governed by law, not by aggressive and bullying tax officials. There is a reason smaller companies are often paying disproportionately too much tax. Large corporates and even medium-sized business can afford dedicated tax and accounting specialists to attend to such matters, but in smaller businesses the owner usually single-handedly attends to all matters. From our experience these small business owners would rather avoid tax matters than not. It tends to get neglected, even though it is often one of the biggest overheads in a business.
If you’re worried about paying more tax next year, see a tax professional and you may pay considerably less.
