Small Business Tax: Turnover Tax for Small Businesses in South Africa

March 25, 2026•9 min read

This is article #3 of 5 in the Small Business Tax Series

Introduction

Running a small business involves many responsibilities, and one of the most challenging areas for many entrepreneurs is tax compliance. Calculating profit, tracking expenses, and submitting multiple tax returns can become complicated, especially for very small businesses that may not have formal accounting systems.

To help simplify the tax system for micro businesses, the South African Revenue Service introduced a special system called Turnover Tax. This system was designed to make tax compliance easier for very small businesses by replacing several different taxes with one simplified tax based on turnover.

Turnover tax can be a useful option for certain small businesses. However, it is not suitable for every business. Business owners must understand how the system works, how it is calculated, and whether it is the best choice for their situation.

In this article, we will explain what turnover tax is, who qualifies for it, how to register, how the tax is calculated, when returns must be submitted, and how small business owners can decide whether it is the right option for them.

What Is Turnover Tax?

Turnover tax is a simplified tax system created specifically for micro businesses in South Africa.

Instead of calculating tax based on profit, turnover tax is calculated based on turnover. Turnover simply means the total income your business receives before expenses are deducted.

Under the turnover tax system, qualifying businesses pay a single tax that replaces several other taxes.

For most qualifying businesses, turnover tax replaces:

Income tax
Provisional tax
Capital gains tax on business assets
Dividends tax (in some cases)

This simplified system reduces the amount of paperwork and accounting required for very small businesses. Instead of complex financial calculations, businesses mainly need to track how much money they receive during the year.

However, turnover tax does not replace VAT. Businesses that qualify for turnover tax may still need to register for VAT if their turnover exceeds the VAT threshold.

The turnover tax system is administered by the South African Revenue Service and is designed to help small entrepreneurs remain compliant with tax regulations while reducing administrative burdens.

Who Qualifies for Turnover Tax?

Turnover tax is only available to micro businesses that meet certain requirements.

To qualify, a business must generally have annual turnover of R1 million or less.

This threshold means the system is designed for very small businesses, such as:

Small retail shops
Local service businesses
Freelancers and consultants
Small repair or maintenance businesses
Small food vendors
Micro manufacturing businesses

However, not every business below this threshold qualifies.

Certain businesses cannot use the turnover tax system. Examples may include businesses involved in certain professional services or companies where a large portion of income comes from investment activities.

These restrictions exist because turnover tax is intended primarily for simple micro businesses with straightforward operations.

Before registering, it is important to check the full eligibility requirements provided by the South African Revenue Service.

How Turnover Tax Differs from Normal Income Tax

To understand turnover tax, it helps to compare it with the normal tax system.

Under the standard tax system, businesses must:

Track income and expenses
Calculate profit
Submit provisional tax returns
Submit annual income tax returns
Calculate capital gains tax when assets are sold

This process can require detailed bookkeeping and accounting knowledge. Under the turnover tax system, the process is simplified.

Businesses mainly need to:

Track their total turnover (income)
Submit turnover tax returns
Pay tax based on a simple turnover-based rate

Because the system does not rely on profit calculations, businesses do not deduct expenses when calculating tax.

This makes the system easier but also means that businesses with high expenses may pay more tax than they would under the normal tax system.

How to Register for Turnover Tax

Businesses that want to use turnover tax must register with the South African Revenue Service.

Registration normally happens through SARS eFiling or through a tax practitioner.

Step 1: Confirm that Your Business Qualifies

Before applying, the business owner should confirm that:

Annual turnover is expected to be R1 million or less
The business activity qualifies for the system
The business structure is eligible

Step 2: Submit a Turnover Tax Application

Businesses must apply for turnover tax before the start of the new tax year. In most cases, applications must be submitted before the end of February, just before the new tax year begins in March.

If the application is approved, the business will be registered under the turnover tax system for that tax year.

Step 3: Commit to the System

Once registered, the business normally remains in the turnover tax system for at least three years, unless it no longer qualifies. This rule exists to prevent businesses from frequently switching between tax systems.

How Turnover Tax Is Calculated

Turnover tax is calculated using tax brackets, similar to how personal income tax works.

However, instead of taxing profit, the tax is based on total turnover.

Turnover means all income received by the business during the year, excluding certain items such as capital contributions or loans.

The tax rate increases as turnover increases.

Here is a simplified example structure (illustrative):

Annual Turnover Turnover Tax

Up to R335,000 0%

R335,001 – R500,000 1%

R500,001 – R750,000 2%

R750,001 – R1,000,000 3%

These brackets may change from time to time, so business owners should always confirm the latest rates from the South African Revenue Service.

Example 1: Small Service Business

Imagine a small plumbing business that earns R300,000 per year. Since this turnover falls within the tax-free threshold, the business may pay no turnover tax. However, the business must still submit the required turnover tax return.

This system helps encourage small informal businesses to become compliant without placing heavy tax burdens on them.

Example 2: Growing Small Business

Now imagine a small cleaning company that earns R450,000 per year.

Under the turnover tax brackets:

First R335,000 = 0%
Remaining R115,000 = taxed at 1%

Calculation: R115,000 × 1% = R1,150 turnover tax

Even though the business earns nearly half a million rand in turnover, the tax amount remains relatively small.

Example 3: Larger Micro Business

Now consider a small retail shop with R900,000 turnover.

Using the simplified bracket structure:

R335,000 at 0%
R165,000 at 1%
R250,000 at 2%
R150,000 at 3%

Calculation:

R165,000 × 1% = R1,650
R250,000 × 2% = R5,000
R150,000 × 3% = R4,500
Total turnover tax = R11,150

This system still remains relatively simple compared with the standard tax system.

When Turnover Tax Returns Must Be Submitted

Businesses registered for turnover tax must still submit tax returns and payments during the year.

The system includes:

Two Interim Payments

These payments are similar to provisional tax payments.

They are typically made:

August
February

These payments are based on estimated turnover.

Final Turnover Tax Return

At the end of the tax year, the business submits a final turnover tax return to confirm the total turnover for the year.

If the business paid too much during the interim payments, SARS will refund the difference. If the business paid too little, the remaining amount must be paid.

Even though turnover tax is simplified, deadlines must still be followed carefully to avoid penalties.

Advantages of Turnover Tax

Turnover tax offers several benefits for very small businesses.

Simpler Tax Calculations: Businesses do not need to calculate profit or track complex deductions.

Less Administrative Work: The system requires fewer financial calculations and tax forms.

Lower Compliance Costs: Businesses may not need expensive accounting services.

Encourages Formal Business Activity: The system helps small informal businesses become tax compliant.

For many micro entrepreneurs, these benefits make the system easier to manage.

Disadvantages of Turnover Tax

Despite its simplicity, turnover tax is not always the best option.

Expenses Cannot Be Deducted: Businesses cannot subtract expenses when calculating tax. If your business has high expenses, you may pay more tax than under the normal system.

Not Suitable for Fast-Growing Businesses: If your turnover approaches R1 million, the standard tax system may become more appropriate.

Limited Flexibility: Businesses must normally remain in the system for several years once registered.

Because of these factors, business owners should carefully evaluate their situation before choosing turnover tax.

When Turnover Tax May Be a Good Option

Turnover tax may work well for businesses that:

Have simple financial structures
Have low operating expenses
Have small turnover
Want simpler tax compliance

Examples include:

Small repair services
Freelance services
Small local shops
Informal traders transitioning into formal businesses

However, businesses with high expenses or rapid growth may benefit more from the normal tax system.

Why Business Owners Must Understand Turnover Tax

Turnover tax was created to make the tax system easier for very small businesses in South Africa. By replacing several different taxes with one simplified system, it reduces the administrative burden for entrepreneurs who may not have complex accounting systems.

However, even though the system is simpler, business owners still need to understand how turnover tax works. You must know how the tax is calculated, when returns are due, and whether this system is the best option for your business.

Even if you hire a bookkeeper or accountant to help with your taxes, you as the business owner must still understand the basics. When you understand your tax obligations, you can make better financial decisions and avoid costly penalties from the South African Revenue Service.

In the next article in this Small Business Tax series, we will explore two other taxes that can affect business owners: Capital Gains Tax and Dividends Tax. These taxes become important when businesses sell assets or distribute profits to shareholders, and understanding them is essential for long-term financial planning.