What is turnover tax and how does it differ from VAT?
Turnover tax is charged on gross revenue with no deduction for costs or input tax. VAT is charged on value added, with tax on purchases credited against tax on sales. The practical consequence is that turnover tax cascades: if a product passes through three businesses before reaching a consumer, tax is levied on the full price at each stage, so the embedded tax exceeds the headline rate. That cascading effect is precisely why most countries replaced turnover taxes with VAT.
Who pays turnover tax rather than VAT?
Typically small businesses under a threshold, in countries offering a simplified regime. South Africa's turnover tax covers micro-businesses under a revenue ceiling; several African, Latin American and Eastern European systems have equivalents. The trade is simplicity for fairness: no input-tax records, one calculation on gross revenue, but no relief for the costs you incurred earning it.
Is a simplified turnover regime actually cheaper?
Only if your margins are high. Because the tax ignores costs, a business with thin margins can pay more under turnover tax than it would under a profit-based regime — in a bad year you can owe tax while making a loss. As a rough test: work out your tax under both regimes at your realistic margin, not your best-case one. Low-margin resellers usually lose; service businesses with few input costs usually win.
Can I deduct anything at all?
Generally no, and that is the defining feature. No deduction for cost of goods, wages, rent or capital purchases, and usually no credit for tax paid on inputs. Some regimes exclude specific receipt types from the turnover base — capital disposals, certain exempt supplies, or amounts collected as agent — so read what counts as turnover carefully. Misclassifying pass-through receipts as your own revenue is a common and expensive mistake.
What happens if I cross the threshold?
You normally must register for the standard regime, often from the start of the following tax period, and sometimes immediately. Crossing mid-year can mean two different regimes in one year and a duty to register for VAT. Because the transition is administratively heavy, businesses approaching the ceiling should model both regimes in advance rather than discovering the change after the fact.
Is turnover tax the same as a gross receipts tax?
Effectively yes — the terms describe the same mechanism, taxing revenue rather than profit. You will also see it called a sales tax on gross receipts, or in some US states a business and occupation tax. The labels differ by jurisdiction but the arithmetic and the cascading problem are identical.