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Draft tax bill favours flat corporate rate of 28%
Categories: Tax
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Draft tax bill favours flat corporate rate of 28%

Jul 24, 2014 | Amanda Visser

Bill proposes that small business corporations be taxed the same as large businesses, but receive an annual tax rebate of R15,000 to help with compliance costs

REDUCED tax rates for small business corporations (SBCs) will be scrapped in favour of a flat corporate tax rate of 28%, according to the draft Taxation Laws Amendment Bill published last week by the Treasury.

Companies with a turnover of less than R20m qualify currently for the small business corporation tax relief regime, which provides for progressive tax rates of 0%, 7%, 21% and 28%. The bill proposes that SBCs be taxed the same as large businesses, but receive an annual tax rebate of R15,000 to help with compliance costs. The rebate will be refundable, meaning companies in a tax loss position will also receive the rebate.

Businesses in a tax loss position did not benefit from the current regime, despite having the same compliance burden as profit-making businesses, the Treasury said.

The Davis tax committee, appointed by former finance minister Pravin Gordhan to review the overall tax system, found in its report on small and medium-sized businesses that the lower tax rates for SBCs were not effective, did little to support the objective of small business growth, and did not address compliance cost.

The Treasury said the reduced rate return offered relief only to 50,000 businesses and cost the fiscus R1.4bn a year.

Deloitte’s head of taxation services, Nazrien Kader, said the firm supported the proposal because the reduced rates were not effective, given the number of businesses that benefited from them.

She said it was important to get small businesses into the tax net and then to assist them with their compliance burden.

Ms Kader did not want to express an opinion on whether the rebate of R15,000 was sufficient to cover compliance costs. “It is more important to bed down the new system and then we can discuss thresholds.”

The head of tax technical at PwC, Kyle Mandy, said PwC supported the single tax rate. “Most studies showed it was better to tax over a broader base, and possibly at a lower rate, rather than providing specific concessions to a particular taxpayer.”

However, Mr Mandy was concerned that the compliance rebate was offered to SBCs only and excluded sole proprietors and individuals who have to pay accountants to assist them with their tax returns to comply. Efforts should be directed at making it easier for businesses to comply, rather than offering incentives for compliance. The administrative processes for SBC should be simplified, he said.

Key stakeholders and interested parties have until August 17 to submit written comments on the proposals in the draft bill.

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