Cash-flow troubles are a major contributor to small business failures. One simple way to reduce this risk is to allow small businesses to use a cash basis of taxation. This would also reduce their tax compliance risks. Currently provincial government departments, municipalities, public authorities, water boards, public benefit organisations and even the SABC are allowed to use a cash basis, irrespective of their size. However, only sole owners and partnerships with a turnover of less than R2.5m are allowed to use the cash basis of accounting. Incorporated small businesses are left out in the cold, while public authorities, government departments and municipalities reap the cash flow benefits of accounting on a cash basis, without any limitations on output tax. Sole owners and partnerships are obliged to declare output tax (value-added tax, or VAT, on their sales that must be paid over to the South African Revenue Service) on the invoice basis for supplies exceeding R100,000. With th...

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