Abstract
The South Africa Turnover Tax system, implemented on 01 March 2009 to simplify tax for microbusinesses and to improve tax compliance had an insignificant number of registrations and research indicated that a possible reason is the fairness of the tax. The aim of this study is to explore the perceived fairness of the Turnover Tax system. By way of a literature review, criticisms and provisions of the Sixth Schedule to the Income Tax Act No. 58 of 1962 were identified and used as statements on a survey questionnaire. Using the principles of a fair tax system as advanced by Adam Smith a correspondence survey which included two open-ended questions was issued to participants with knowledge of Turnover Tax to establish whether the statements corresponded to any of Adam Smith’s Maxims. The results reveal that the Turnover Tax system is not perceived as completely fair and encourage Government to relook at the legislation with the intend to simplify it further, to removing ambiguity and add detailed lists of excluded services. Education and training of taxpayers is important. A repetition of this study on taxpayers registered on the Turnover Tax system will make further contribution and add to the insight into the fairness of the Turnover Tax system provided by this article.
Highlights
Estimates of the contribution of small, medium and microenterprises (SMMEs) to the economy vary
The South African Revenue Service (SARS) (2008) reported that many small businesses do not pay tax as they are overwhelmed by the complexities of the current tax system and high compliance cost, and this was confirmed in later research (Smulders et al 2016)
Since South Africa implemented the simplified Turnover Tax system for microbusinesses in 2009, only about 7 700 businesses have registered for this tax and of these only 12% are new taxpayers: This means only about 924 new businesses registered as taxpayers under the Turnover Tax system (National Treasury 2011a:75)
Summary
Estimates of the contribution of small, medium and microenterprises (SMMEs) to the economy vary. The South African Revenue Service (SARS) (2008) reported that many small businesses do not pay tax as they are overwhelmed by the complexities of the current tax system and high compliance cost, and this was confirmed in later research (Smulders et al 2016). In order to address the problem of the complexities of the current tax system and high compliance cost, South Africa introduced a simplified tax system for businesses, individuals or companies with a turnover which does not exceed an amount of R1 million (SARS 2008). The simplified tax system, called Turnover Tax, was implemented with effect from 01 March 2009, applicable in respect of years of assessment commencing on or after that date (s 48A of the Act). The Davis Tax Committee (2014:26) reported that as at 04 July 2013 there were only 7827 active microbusinesses and Visser (2016) reported that it is still less than 10 000
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