“It first starts with the accounting side. They first have to make sure that their accounting records are in order before they can get to the tax. Our primary problem is that they’re not keeping accounting records, and that’s one of the reasons why the turnover tax system as brought in to simplify the accounting records,” Sharon Smulders, head of tax technical & research at the South African Institute of Tax Practitioners, told CNBC Africa on Wednesday.
“For those that cannot qualify or the turnover tax isn’t applicable for them, then you have other regimes that are available like the small business corporation regime, or the normal tax regime, but in all those cases you need accounting records.”
Smulders added that Small, Medium and Micro-sized Enterprises (SMMEs) need to keep records up to date and for at least five years, as well as keep a record of the approaching deadline for Employer Annual Reconciliation.
“The things they need to look out for is the classification between an interdependent contractor and a personal service provider and a labour broker,” Smulders explained.
“Specifically the independent contractor side, there’s no employees’ tax implications on that but it’s very difficult in some cases to determine whether or not people are independent contractors or if they’re actual personal service providers, and tax treatment is very different.”
While tax law can be quite complex, SMMEs, independent contractors and personal service providers are encouraged to access interpretation notes provided by SARS, which simplifies tax law language. According to Smulders, two of the most burdensome taxations for SMMEs are the Value Added Tax and the Skills Development Levy.
“The fundamental problem with taxation, first the complexity and, then you just don’t have the time. Complexity increases your time, and that’s why SARS is having a look at re-writing their tax legislation. They’ve started with the Customs and Excise Act, moving later on to the others. They are trying, with the new legislation, to make it as simple as possible,” said Smulders.
SARS will also introduce anti-avoidance provisions to prevent abuse of the taxation system, but more dialogue between the tax regulator and SMMEs is needed to streamline the taxation compliance process.
“I think the small business at the moment, they don’t have a voice, we don’t even have a proper of these small businesses. There’s no one place they can go to voice their views,” she said.