A “micro business” may elect to be taxed under the Sixth Schedule of the Income Tax Act which provides for tax at 10% of total receipts rather than the normal company rate of 28%.

Persons qualifying as a “micro business” include natural persons and companies where the total receipts from business activities (excluding capital expenditure and certain exempt items) do not exceed R1 million per tax year. Such businesses pay tax in respect of taxable turnover as opposed to taxable income.

Currently, the provisions of The Act limit the relief given to a “micro business” where there is common ownership in more than one company, such as the case of partnerships. The prohibition makes little sense where the ownership is in a liquidating, inactive company.

It is proposed that this limitation be removed in the case of liquidating or deregistering companies. It is proposed that the same limitation be removed for “small business corporations” (gross income not to exceed R14 million per tax year) where a similar limitation applies.

In addition to the changes outlined above, certain technical refinements to the taxable turnover tax methodology of taxing “micro businesses” have been proposed.

These include refinements to issues faced by businesses on entering the system, coordination with VAT and a refinement to the definition of “professional services”, which are currently excluded from being taxed as a “micro business.