THE tax amnesty for small businesses is counting down to a May 31 deadline amid confusion and concerns, although the South African Revenue Service (SARS) has announced it is stepping up its awareness and education campaigns.

The amnesty applies to persons or businesses that carried on a trade in the 2006 tax year. An Explanatory Memorandum to the legislation makes it clear that the amnesty applies not only to income tax but to a string of other potentially confusing taxes — VAT, PAYE, STC, UIF and skills development levies (SDLs).

The amnesty covers a broad spectrum of small businesses with an annual gross taxable income of up to R10m, excluding VAT. It includes sole proprietors, partnerships, closed corporations, trusts in which only individuals have interests, unlisted companies wholly owned by individuals, body corporates, co-operatives and insolvent and deceased estates.

The applicable tax year for individuals and trusts is March 1 2005 to February 28 2006. For other entities it is the financial year ending during the period April 1 2005 to March 31 2006.

Finance Minister Trevor Manuel says non-compliant small businesses that fail to apply for amnesty face vigorous enforcement.

Initial projections were that between 100000 and 150000 small and micro businesses could qualify for the amnesty. By early February, just over 9000 applications and 41000 inquiries had been received, says SARS spokesman Adrian Lackay.

He says SARS has set up a Small Business Amnesty Unit and that its amnesty helpline is fielding a growing number of calls.

Tax specialists predict a last-minute flurry of applications, as occurred with the previous exchange-control amnesty.

A tax consultant, quoting SARS, says there are more than 920000 businesses on the tax register. Of these, about 250000 have a turnover of less than R10m/year.

There are an estimated 3million small and micro businesses in SA. Many are in the informal sector and are run by people with no experience and little knowledge of business taxation. Tax specialists say it is primarily up to SARS to inform these little businesses about the amnesty and, more importantly, about their ongoing tax obligations.

Reasonable estimates of income must be provided if it is not possible to give full particulars of actual amounts.

Lackay says SARS will soon launch “a broader and more intensive communications and marketing campaign”. It will seek to bring on board business organisations, tax practitioners and institutions such as the South African Institute of Chartered Accountants.

“We want to find out how many potential tax amnesty applicants there are and where they operate.”

SARS branch offices would also become involved more actively, since they should have an informed opinion of their immediate tax base and should be able to engage small businesses and small business organisations.

Beric Croome, tax director at Edward Nathan Sonnenbergs, says the R10m gross taxable ceiling for amnesty applicants applies “per natural person”. Hence for a partnership with two or three partners the amnesty amount is R20m or R30m.

Tabling the amnesty bill in Parliament in June, Finance Minister Trevor Manual said penalties for amnesty seekers were necessary and generous, considering the amnesty discriminated against compliant taxpayers.

Businesses making use of the amnesty would pay a penalty of 2% on taxable income between R35000 and R100000, 3% up to R250000, 4% up to R500000, and 5% thereafter.

The amnesty does not apply to salary income earned by employees of the business. Also excluded are individuals not carrying on a trade, such as directors and members who may have paid themselves a salary.

Customs and excise and indirect taxes, such as transfer duties, are not covered.

Taxpayers who are already registered can also make use of the amnesty window. If they have not been completely honest about their business income in previous returns they can use this opportunity to “come clean”. If they don’t they can be prosecuted for previous noncompliance.