You and the Receiver of Revenue
Now that you are beginning a business, it will be helpful if you have a general understanding of the various activities of your Receiver of Revenue, as well as your duties and obligations in terms of the tax laws. The tax laws are administered by the Commissioner for SARS, Pretoria, acting through the Receivers of Revenue who are stationed in 32 major centres throughout the country. The Receiver of Revenue is obligated by the law to determine and collect from each taxpayer only the correct amount of tax that is due.
Income tax – sole proprietorships and partnerships:
Sole proprietorships and partnerships do not have separate legal personalities as is the case with close corporations and companies. With a sole proprietorship, the owner or proprietor must include the income from his business in his own gross income as he is responsible for the payment of taxes thereon in his individual or personal capacity. This is also the case with partnerships. A partnership is not a taxpayer but each partner is taxed on his share of the partnership profits. Sole proprietors and partners must register as provisional taxpayers with their local receiver of revenue.
Income tax – close corporations and private companies:
Close corporations and private companies are legal entities and have separate legal personalities of their own. They must therefore register as taxpayers in their own right as opposed to a partnership or sole trader/proprietor where the only taxpayers are the owners or partners of the business.
Basically the taxable income of the company or close corporation is determined in the same way as that of a sole proprietorship or partnership. The year of assessment of a company or close corporation coincides with its financial year if the financial year end is 30 June, its tax year or year of assessment will run from 1 July to 30 June.
A company is required by law to appoint an auditor who will audit and sign its financial statements. Similarly, a close corporation is required to appoint an accounting officer. Normally the auditor or accounting officer will provide assistance in determining the taxable income and the amount of tax to be paid.
You will probably have to register for one of the following at the Receiver of Revenue:
Value-Added Tax
Value Added Tax (VAT) is an indirect tax levied under the Value-Added Tax Ad 89 of 1991 (the VAT Act). VAT is levied on the supply of goods or services by a registered vendor in the course or furtherance of his enterprise. VAT is also levied on the importation of goods and certain services into South Africa by any person, whether or not a vendor; as it is in effect a tax on the consumption of goods or services in South Africa.
Registration
Application for registration as a vendor under the Act must be made on form VAT 101 (which is obtainable from your local Receiver of Revenue), within 21 days of becoming liable to register
Two categories of registration
Compulsory registration – any person who on or after 30 September 1991 carries on any enterprise and whose total value of taxable supplies (taxable turnover) exceeds or is likely to exceed R150 000 in any 12-month period.
Voluntary registration – any persons who on or after 30 September 1991 carries on any enterprise and whose total value of taxable supplies (taxable turnover) does not exceed R150 000 in any 12-month period.
Every registered vendor is obliged to furnish the Receiver of Revenue with a VAT 201 return which must be submitted within the period ending on the 25th day of the month, following the month in which the tax period ends together with any payment due.
The VAT 201 return is used to calculate the VAT payable by or refundable to the vendor. Where a vendor’s output tax (i.e. VAT charged on supplies of goods or services) exceeds his input tax (i.e. VAT paid or payable by a vendor on goods or services which are acquired for the purpose of making taxable supplies) the difference is the VAT payable by the vendor. Where the input tax exceeds output tax for any period a refund will be paid to the vendor
An input tax credit may only be claimed as a deduction against output tax, if the following conditions are met:
•The input tax was paid and invoiced by a registered vendor.
•A tax invoice/agreement is in the vendor’s possession.
Because every vendor within the production and distribution chain is liable for VAT but claims the amount of tax paid in respect of inputs by setting it off against its output tax, the total amount of tax is collected by the receiver of revenue at the final stage of consumption. The end consumer is therefore actually paying on the value added hence the term Value-Added Tax.
Supplies:
•Taxable supply
•Exempt supply.
Taxable supply is any supply of goods or services in the course or furtherance of an enterprise subject to tax at one of the two rates:
•Standard rate, currently 14% (10% prior to 7 April 1993).
•Zero-rate (i.e. 0%)
Zero-rated supplies:
Zero-rated supplies are certain taxable supplies, taxed at a rate of 0%. These supplies relate mainly to the exportation of goods or services and also to certain basic foodstuffs sold locally. Any vendor applying rates of zero percent must obtain and retain documentary proof of his entitlement to apply the zero rate.
Exempt supplies:
Exempt supplies are supplies of goods or services on which VAT is not chargeable at either the standard or zero rate. Exempt supplies are not taxable supplies and do not form part of your taxable turnover. If a person only makes exempt supplies, the person may not be registered as a vendor for VAT purposes. VAT incurred on any goods or services acquired in order to make exempt supplies may not be claimed as an input tax credit.
Employees tax:
Employees Tax is a system of tax collection whereby employers are obliged by law to deduct tax from the salaries or wages that they pay to their employees. The tax deducted is paid by the employer to the receiver of revenue on behalf of employees. The object of the employees tax system is the deduction of tax from salaries or wages on a regular basis so that the income tax payable on such income is set aside while it is being earned.
