Small businesses in South Africa are often managing multiple priorities such as business efficiency, innovation and growth. Amidst these daily challenges, many overlook the value of claiming the full range of tax benefits available to them.
The tax base at a glance
At the forefront of this movement is the South African Revenue Service (SARS), which collects the bulk of its revenue from three main sources – Personal Income Tax (PIT) at 37.4%, Value Added Tax (VAT) at 25.7% and Company Income Tax (CIT) at 18.2%.
The SARS’s tax ecosystem is large and multifaceted. In 2023/24, there were 959,000 registered VAT vendors, but only 488,118 were active, amounting to just 50.9% of the total. Out of 3.6 million registered CIT taxpayers, only 1.16 million are actively contributing – 643,948 are registered for PAYE, 389,302 are registered trusts and a mere 172,611 registered for Small Business Corporation (SBC) tax. Although over 1 million businesses were assessed for CIT in 2023/24, a staggering 66.5% of all CIT revenue came from just 549 companies. In fact, only 14.8% of assessed companies registered for SBC tax, indicating that many small businesses either report zero or negligible taxable income.
Despite the impressive growth revealed in the latest tax statistics, it’s clear that a significant gap exists. There is great opportunity for small businesses who are underrepresented in tax compliance and contribution to review their tax strategies and reap the rewards of compliance.
Significant revenue growth signals positive change
SARS’s total tax revenue has shown impressive growth, from R1,355.8 billion in 2019/20 to R1,740.9 billion in 2023/24, marking an annual increase of 3.6%. This growth is a testament to two key factors. Firstly, SARS has invested heavily in advanced technology to simplify and streamline tax filing processes. Secondly, there is an increasing number of small businesses that are growing their education around tax, often guided by the crucial advice of their accountants.
“SARS is a well-run organisation that is currently using and planning to increase the use of technology, especially AI, to improve its already efficient processes. VAT and payroll e-filing are examples of great innovations that have made the process smoother for taxpayers and increased compliance. Small businesses should follow and be modernising their thinking and systems. Using digital tools to manage your finances and working with a digital-minded accountant will help small businesses keep up with SARS’ efforts,” said Colin Timmis, Country Manager at Xero South Africa.
Tax incentives tailored for small businesses
While SARS is investing in making tax filing processes even more efficient through advanced technology, there are still very few small businesses reaping the rewards of available tax incentives. For example, there was a 15.5% increase in the limit for the first SBC tax bracket, from R79,000 to R91,250 for the 2023 tax year. This change allows small businesses to earn more income before facing higher tax rates. Enabling small businesses to retain more of their earnings signals a more supportive policy environment for SBC growth. However, only 172,611 businesses have registered for the SBC tax regime in 2023/24. This low uptake highlights a missed opportunity. Not enough small businesses are taking advantage of such incentives that directly support their growth and profitability.
