Tax relief welcome but still not enough incentive for SA small businesses

Although Finance Minister Pravin Gordhan has given further tax relief to small businesses and micro-enterprises in his 2012/13 Budget, there still remains very little incentive for small businesses to start up and flourish in South Africa.

Professor Matthew Lester, speaking at the launch of the 2012 Sanlam / Business Partners Entrepreneur of the Year ® competition, says that tax relief in any form is welcome, but at the current level it will not necessarily encourage small businesses and micro-enterprises to grow at the rate required to stimulate the local economy effectively.

“In some cases it may even be beneficial for small businesses to remain at their current size in order to keep qualifying for the reduced tax. That is why it is imperative that tax incentives are tailored to foster growth in the SME sector,” says Lester.

He explains that in terms of the new budget, the tax-free threshold for small business corporations has increased to R63 556, the 10% rate has been reduced to 7% and the threshold to which this rate applies has been increased to R350 000. “For taxable income above R350 000, the normal 28% corporate rate applies.”

According to Christo Botes of the Sanlam / Business Partners Entrepreneur of the Year ® competition, a taxable income of less than R350 000 is a very small business. “There should rather be a complete tax holiday for the first three to five years of business and a rebate should be paid for sustainable jobs created over this period of growth.

“Essentially, businesses in South Africa are better off overall as a result of these changes, but the benefits are not readily apparent,” says Botes.

Finance Minister Gordhan also announced that qualifying micro-businesses, within the R1 million turnover limit, will be able to pay turnover tax, VAT and employees’ tax twice a year. This means that the number of returns and payments a year will be reduced from about 18 to just two.

“Although this is positive from a red tape perspective, the turnover of R1 million is minimal and formal registered businesses within the manufacturing, construction and retail sectors will receive very little benefit from this as their turnovers should be way above R1m to remain sustainable,” says Botes.

According to Botes, the new competitiveness enhancement programme – which has been initiated as part of the industrial policy action plan, building on existing production incentives in the automotive and clothing and textile sector – is however a positive step. “These sectors are known as key job creators and are mainly run by small businesses.

“The automotive industry has various tiers of manufacturers and it is often small and medium-sized enterprises that do most of the component manufacturing.”

He says that the objectives of government’s draft National Development Plan and vision for 2030 will also effectively support job creation and SME development. “The growth of the manufacturing and agricultural sectors will potentially result in the creation of new small businesses, as well as the expansion of existing businesses.”

Botes adds that the National Tooling Initiative in support of accelerated apprentice training is also a positive initiative that has been discussed a great deal in the past. “We look forward to hearing more details on the roll-out of this initiative, as the potential is for smaller manufacturers to take on apprentices, thus playing a key role in practical training and fostering crucial skills development.”

He says that though the latest budget has outlined a positive vision for the growth of SMEs, more needs to be done practically to profile the success and significant job creation achievements of entrepreneurs across South Africa. “This is the primary aim of our annual competition, which we believe plays a crucial role in elevating the standard of entrepreneurial activity locally, as well as fostering a national entrepreneurial spirit that directly translates into job creation,” concludes Botes.