Turnover tax or normal tax: which regime fits your business in 2026/27?
South Africa has three main ways a small business can be taxed: on turnover, as a small business corporation, or under normal income tax. From 1 April 2026 the turnover tax limit rose to R2.3 million, so many more businesses now have a real choice.
In short
- Turnover tax is open to businesses with turnover up to R2.3 million (it was R1 million). You pay a small percentage of sales, and the first R600,000 is taxed at 0%.
- It suits high-margin businesses with few deductions. It can cost more than normal tax for a low-margin or loss-making business.
- Some businesses cannot use it, including those earning more than 20% of receipts from professional services.
- You can register for turnover tax and VAT at the same time. They are separate systems.
- Existing businesses can switch before the start of a new tax year.
The three regimes
| Regime | Who it is for | How tax is worked out |
|---|---|---|
| Normal income tax | Sole proprietors and partnerships | Your profit is taxed at personal rates from 18% to 45%, less a rebate of R17,820 |
| Small business corporation (SBC) | Qualifying private companies | Profit is taxed at 0% to 27%, then dividends tax applies when you pay profit out |
| Turnover tax | Micro and small businesses with turnover up to R2.3 million | A percentage of your sales, not your profit |
The South African Revenue Service (SARS) sets all three. The SBC and turnover tax figures below are for 2026/27.
Turnover tax in detail
Turnover tax is a simplified regime. Instead of working out profit, you pay tax on total sales, using these bands.
| Annual turnover | Tax |
|---|---|
| R0 to R600,000 | 0% |
| R600,001 to R950,000 | 1% of the amount above R600,000 |
| R950,001 to R1.4 million | R3,500 plus 2% of the amount above R950,000 |
| Above R1.4 million | R12,500 plus 3% of the amount above R1.4 million |
Registration is optional. It covers your income tax, and you make two payments a year and file a turnover tax return after year end. You can also be registered for VAT, because the two are separate systems.
Who cannot use it. SARS excludes businesses with turnover above R2.3 million, businesses where more than 20% of receipts come from professional services (such as accounting, consulting or management services), personal service providers and labour brokers, businesses where more than 20% of receipts are investment income or rent, companies with a shareholder who is not a natural person, and businesses that previously opted out.
Small business corporation rates
A private company can use SBC rates if all its shareholders are natural persons, its gross income is not more than R20 million, and it is not a personal service company or a holding company. For years of assessment ending 1 April 2026 to 31 March 2027:
| Taxable income | Tax |
|---|---|
| R0 to R99,000 | 0% |
| R99,001 to R365,000 | 7% of the amount above R99,000 |
| R365,001 to R550,000 | R18,620 plus 21% of the amount above R365,000 |
| Above R550,000 | R57,470 plus 27% of the amount above R550,000 |
Money paid out to you as dividends then carries dividends tax of 20%. Our guide to comparing a sole proprietor and a company shows how that changes the answer.
A worked example: turnover tax against normal tax
Take a sole proprietor with turnover of R1.2 million. Turnover tax on that is R3,500 plus 2% of R250,000, which is R8,500, whatever the profit. Normal income tax depends on profit.
| Profit margin | Profit | Normal income tax | Turnover tax |
|---|---|---|---|
| 5% | R60,000 | R0 | R8,500 |
| 10% | R120,000 | R3,780 | R8,500 |
| 20% | R240,000 | R25,380 | R8,500 |
| 40% | R480,000 | R92,217 | R8,500 |
The lesson is about margin. At low margins normal tax is lower, because profit is below the tax threshold. At 20% and above, turnover tax is cheaper. This ignores deductions such as retirement contributions, which lower normal tax further. In turnover tax you do not deduct expenses, so keeping records is simpler, but you also do not get a deduction for a loss.
How to decide
- Check that you qualify. Turnover under R2.3 million and none of the exclusions above.
- Work out your margin. High margin and few deductible costs points to turnover tax. Thin margins, heavy costs or expected losses point to normal tax.
- Compare the numbers, using the last two years of actual profit, not this year's hopes.
- Think about growth. A business heading past R2.3 million will have to leave turnover tax, so the saving may be short lived.
- Consider the other taxes. Turnover tax also replaces provisional tax, capital gains tax and dividends tax for the business, which is part of its appeal.
What to do now
- Add up turnover for the last 12 months and compare it with R2.3 million.
- Calculate tax both ways for your last full year. A bookkeeper can do this quickly.
- Decide before your tax year starts. Existing businesses can register for or switch to turnover tax before a new tax year begins. New businesses must apply within two months of starting.
- Diarise the two turnover tax payments, six months into your tax year and at year end.
Frequently asked questions
Can I be on turnover tax and register for VAT?
Yes. They are separate systems. You can register for VAT voluntarily or because you pass the VAT threshold.
When do I pay turnover tax?
In two payments: six months after your tax year starts and at the end of your tax year. You then submit a turnover tax return after year end.
Can a company use turnover tax?
Yes, if it meets the conditions, including that all shareholders are natural persons.
What if my turnover goes over R2.3 million?
You leave turnover tax and move to normal tax. Plan for that before it happens.
Sources and further reading
- Budget 2026 Frequently Asked Questions (turnover tax, small business corporation rates, personal tax tables), South African Revenue Service
- Dividends Tax, South African Revenue Service
This article is general information for South African businesses. It is not tax, legal or financial advice, and it reflects the rules and figures at the date shown above. Tax rules change, so confirm the current position before you act. TBL's practitioners are registered tax practitioners.