Any measure that can boost the local economy beyond the projected 1.1% growth is at the top of the 2017 National Budget Speech wish-list for South Africa’s vital small and medium enterprise (SME) sector. Coupled with the hope that there is no further political turmoil, the ideal scenario for existing and aspirational SME owners would be long-term stability within the economic cluster.
This is according to Ben Bierman, Managing Director of Business Partners Limited (BUSINESS/PARTNERS), the leading local risk financier to SMEs, who says that with the promise of overall business growth that the year holds, the time to enhance specific support measures for South Africa’s small businesses in the budget is now.
“Provided South Africa can maintain a stable political environment this year, the Budget Speech is bound to contain some growth opportunities for entrepreneurs. And given the outlook for growth that can be achieved this year, South Africa’s entrepreneurs should be a major focus area for the government,” says Bierman.
Pro-SME initiatives that BUSINESS/PARTNERS would like to see in the 2017 National Budget Speech include:
1. Increased tax relief and tax breaks for small businesses: Even though Finance Minister Gordhan is expected to raise taxes in order to balance the Budget, a strong pro-growth argument can be made to strengthen the main tax incentive for owner-managed businesses with a turnover of less than R20m. Known as tax relief for Small Business Corporations, the measure allows small businesses to pay a lower tax rate than the standard 28% Companies Tax on their first R550 000 of taxable income.
Business owners would also like to see the R20m turnover cut-off increased, as well as the size of the incentive itself. At the same time the Turnover Tax incentive can be strengthened by increasing the qualifying threshold of R1m turnover, and by lowering the tax rate that qualifying micro businesses pay on their turnover even further.
2. Growth enhancing VAT exemptions: One of the heaviest compliance burdens on small businesses is the requirement that VAT must be paid on an invoice basis. Having to pay VAT over to the South African Revenue Service (SARS) for money that has not yet been received can be an enormous, sometimes fatal, drain on the cash flow of many small businesses, as some procurers are notorious for not paying invoices timeously.
In the nineties, small businesses below a certain size were allowed to pay VAT only when they received payment, but this was scrapped after syndicates used the exemption to create false VAT claims against SARS. Restoring the exemption, coupled with the necessary policing measures, could do more for the cash flow of small businesses than any number of tax incentives.
The time is also ripe to increase the R1m-turnover threshold for VAT registration, which has remained the same for many years. While SMEs are generally responsible corporate citizens, paying VAT is not only a cash-flow burden, but also requires intensive paperwork and time, which growing businesses should be able to do without – for as long as possible.
3. Further relief of red tape impacting SME growth: Apart from the VAT suggestions, South Africa’s entrepreneurs will welcome more measures in the Budget that will decrease the administrative compliance burden for SMEs. Despite the calls for austerity, investing in process improvements and administrative efficiency is a long term benefit, although the chances are that they will be limited as austerity continues to bite.
4. Funding for SME support: Funding for the programmes of the Department of Small Business Development, the Small Enterprise Development Agency, the Small Enterprise Finance Agency and the Industrial Development Corporation can be increased, provided these departments have a coordinated and effective strategy targeting meaningful changes to the SME ecosystem to improve business formation and growth.
5. Commitment to working more closely with the private sector:Without costing anything, Treasury can enhance the impact of existing funds aimed at developing and supporting entrepreneurs through closer cooperation with private-sector players.
BUSINESS/PARTNERS has identified three sectors in which support for entrepreneurs is likely to yield the most return in the form of jobs and economic growth: tourism, private education and information technology and communications (ICT). Dedicated funds for technical assistance and finance to SMEs is one sure way to boost these growth sectors. Another is to further ease regulations that threaten to stifle the industries, where possible – for example the strict visa requirements that were recently imposed on tourists to South Africa.
Bierman concludes: “The necessary tweaks and incentives aimed at SMEs within the budget can also work to provide the needed stimulus to grow the economy, however, the impact of these schemes are only really effective when they are made at scale and changes at scale is what we are hoping for.”