Turnover tax is a simplified tax system for qualifying micro businesses. From 1 April 2026, the qualifying annual-turnover ceiling increased to R2.3 million and the tax-free band to R600,000. It is not automatically better than normal income tax: the answer depends on qualification, profit margins, owners, investment income, VAT, growth and record quality.

How the systems differ

Normal company income tax is generally calculated on taxable profit after allowable deductions. Turnover tax is calculated mainly with reference to qualifying turnover bands, with special rules for certain capital receipts and distributions.

For the current official requirements, refer to SARS’s turnover-tax guidance and SARS’s Budget 2026 guidance.

A low-margin business may therefore reach a different result from a high-margin service business with the same turnover.

What turnover tax is intended to simplify

SARS describes turnover tax as replacing income tax, provisional tax, capital gains tax and dividends tax for qualifying micro businesses, subject to the detailed rules. A registered micro business can elect to remain in the VAT system.

Simplification does not mean no records. Turnover, expenses, assets and distributions still need to be tracked.

Qualification is more than the turnover ceiling

• Entity type and ownership
• Nature of receipts and professional-service income
• Interests held in other entities
• Investment income and capital receipts
• Year of assessment and application timing
• Whether disqualifying transactions or structures exist

When turnover tax may be attractive

• The business qualifies clearly
• Administration is genuinely burdensome
• Margins are healthy enough for a turnover-based tax
• Owners understand the treatment of distributions
• Growth is expected to remain within the ceiling
• The accounting system can still maintain reliable records

When normal tax may be preferable

• The business has low or volatile margins
• Significant start-up losses or deductible costs are expected
• Capital allowances materially reduce taxable income
• The ownership or income profile does not qualify
• The business expects rapid growth above the limit
• A future investor requires conventional tax and financial reporting

VAT is a separate commercial decision

Turnover-tax registration does not necessarily mean that the business must leave VAT. SARS states that a micro business registered for turnover tax can elect to remain in the VAT system.

Assess customers, input tax, pricing and cash flow separately.

Do the numbers before applying

Prepare at least two scenarios using realistic turnover, gross margin, overheads, owner withdrawals and growth. Include administration costs and the impact of losing or retaining deductions.

Do not choose a regime solely from a social-media tax-rate table.

Example: low-margin retailer versus consultant

A retailer and consultant each have R1.8 million turnover. The retailer has high cost of sales and a modest taxable profit, while the consultant has few expenses and a high margin. A turnover-based tax can affect them very differently. Qualification and a numerical comparison are necessary.

Plan for growth

Consider the effect of exceeding R2.3 million, hiring employees, registering for VAT or attracting an investor. A tax regime that is convenient this year should not obstruct the next stage of the business.

Related LMW guidance covers VAT registration, provisional tax and IRP6 returns, and ITR14 company income-tax returns.

How LMW Financial Solutions can assist

LMW can review the qualification criteria, compare estimated outcomes and assist with the relevant registration or normal-tax compliance process.

Need practical assistance?
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Frequently Asked Questions

What is the turnover-tax limit in 2026?

From 1 April 2026, the qualifying annual-turnover ceiling is R2.3 million, subject to all other criteria.

What is the turnover-tax tax-free band?

From 1 April 2026, the tax-free threshold is R600,000.

Does turnover tax mean I do not need bookkeeping?

No. Reliable records are still necessary for turnover, assets, distributions, VAT and business management.

Can a turnover-tax business remain VAT registered?

SARS states that a registered micro business may elect to remain in the VAT system.