Turnover Tax vs Income Tax for Small Businesses South Africa
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Turnover Tax vs Income Tax for Small Businesses South Africa 2026
One of the most important tax decisions a small business owner in South Africa can make is whether to use the simplified Turnover Tax system or stay on the normal Income Tax system.
In 2026 this choice became relevant for many more businesses. The qualifying turnover threshold was increased from R1 million to R2.3 million, and the tax-free band was raised to the first R600 000 of turnover. This means thousands of extra sole proprietors, partnerships and small companies can now consider the simpler system.
This guide explains both options in plain language so you can decide which one is likely to cost you less and create less admin.
What is Turnover Tax?
Turnover Tax is a simplified tax regime designed specifically for micro and small businesses. Instead of calculating tax on your profit (income minus expenses), you pay a low percentage on your total turnover (sales).
When you are registered for Turnover Tax it generally replaces:
- Income Tax
- Provisional Tax
- Capital Gains Tax
- Dividends Tax
You can also choose to leave the VAT system (unless you prefer to stay registered for VAT). The result is usually far less paperwork and fewer returns to submit.
Current Turnover Tax rates (2026/27 year of assessment)
| Taxable Turnover | Rate of Tax |
|---|---|
| R0 – R600 000 | 0% |
| R600 001 – R950 000 | 1% of the amount above R600 000 |
| R950 001 – R1 400 000 | R3 500 + 2% of the amount above R950 000 |
| R1 400 001 – R2 300 000 | R12 500 + 3% of the amount above R1 400 000 |
Source: Official SARS Turnover Tax page (updated for Budget 2026).
External link: SARS Turnover Tax
Maximum tax payable at the R2.3 million ceiling is R39 500.
What is Normal Income Tax?
Under the normal system you pay tax on your taxable profit (turnover minus allowable business expenses).
- Sole proprietors and partners pay tax at the individual income tax rates (18%–45%).
- Companies pay Corporate Income Tax at 27%, or the reduced Small Business Corporation (SBC) rates if they qualify.
You must keep detailed records of every deductible expense, submit provisional tax returns, and file a full income tax return (ITR12 or ITR14). If registered for VAT you also submit VAT returns.
Side-by-Side Comparison
| Factor | Turnover Tax | Normal Income Tax |
|---|---|---|
| Tax base | Gross turnover | Taxable profit (after expenses) |
| Record-keeping | Simple – mainly sales records | Detailed – all income and deductible expenses |
| Returns required | Usually one simple annual return | Income tax + provisional tax (+ VAT if registered) |
| Best for | Higher-margin, simple businesses | Businesses with high deductible expenses |
| Maximum turnover | R2.3 million | No limit |
| Ability to claim expenses | No | Yes |
| VAT | Can exit the VAT system | Must remain in VAT if threshold is reached |
When Turnover Tax Usually Makes Sense
Turnover Tax is often the better choice when:
- Your profit margins are reasonably high (you do not have large deductible costs)
- Your record-keeping systems are basic
- You want to reduce the number of returns and the risk of making mistakes
- Your annual turnover is comfortably under R2.3 million
- You are a sole proprietor, partnership, or small company that meets the eligibility rules
Example: A consultant or service provider with R1.2 million turnover and only R150 000 in expenses will almost always pay less under Turnover Tax than under normal income tax rates.
When Normal Income Tax is Usually Better
Stay on (or choose) the normal system when:
- Your profit margins are low (for example a retailer or manufacturer with high cost of goods)
- You have significant deductible expenses, asset write-offs, or assessed losses you want to use
- You expect to grow past R2.3 million in the near future
- You need to remain registered for VAT for cash-flow or customer reasons
- You fall into one of the excluded categories (certain professional services, personal service providers, etc.)
In these cases the ability to deduct legitimate business expenses usually outweighs the simplicity of Turnover Tax.
How to Decide – A Practical Method
- Estimate your expected turnover for the year.
- Estimate your allowable business expenses.
- Calculate the tax you would pay under Turnover Tax using the table above.
- Calculate the tax you would pay under normal Income Tax (or SBC rates if applicable).
- Compare the two numbers and also consider the extra admin cost of the normal system.
If the difference is small, many owners still choose Turnover Tax for the simplicity.
Eligibility and How to Register
You may qualify if you are a sole proprietor, partnership, close corporation, company or co-operative with qualifying turnover of R2.3 million or less, and you do not fall into the excluded categories listed by SARS.
Registration is elective. You can apply through the SARS Online Query System or via eFiling once your profile is active.
Important: Make sure your business is properly set up on SARS eFiling first. See our detailed guide:
→ How to Register Your Business on SARS eFiling in 2026 – Step-by-Step Guide
Final Advice
There is no universal “best” system. The right choice depends on your margins, your record-keeping capacity, and your growth plans. Review the decision at least once a year, especially if your turnover or cost structure changes significantly.
Once you have chosen and activated the correct tax system, the next priority is making sure customers can find you.
→ List your business free on Small Business Directory
This comparison forms part of our complete SARS & Tax cluster. The full pillar guide covering all small-business tax obligations will link back to both this post and the eFiling registration guide.