Johannesburg - Finance Minister Nhlanhla Nene's budget announcement about tax relief for certain small businesses will provide relief to start-up entities and will encourage more entrepreneurs to enter into business ventures, according to Lizette Wiese and Thandi Sobhuza, assistant managers for tax at EY.
"The Davis Tax Committee recommended that the turnover tax regime - which reduces the compliance burden on micro businesses with annual turnover of up to R1m – be made more generous to improve the participation of small businesses in the economy and the tax system," they pointed out.
"This will be supported by the government’s proposal to adjust the rates and thresholds to make the turnover tax more attractive."
They point out that micro businesses with a turnover of less than R335 000 a year will pay no tax.
This threshold has increased from R150 000 the prior year. In addition, the tax payable on turnover generated between R750 001 and R1 000 000 has been reduced from R15 500 plus 6% to R6 550 plus 3%.
"This will provide relief to start-up entities and thus, in our view, will encourage more entrepreneurs to enter into business ventures," they said.
Pledge of financial support
Mike Betts, tax partner at Grant Thornton Cape welcomes Nene’s pledge of financial support for enterprise and skills development, particularly in the area of mentoring and training in the small business environment.
“We applaud the minister’s announcement of the introduction of a central data base which will facilitate single registration when transacting with the state. This will certainly ease the administrative burden for the business community and should have a positive impact on the establishment or formation of small and medium-sized enterprises,” said Betts.
“The reduction in tax rates for micro businesses will be beneficial to this segment of the market and may encourage more participants to avail themselves of the turnover tax regime."
However, he is disappointed that similar benefits could not be extended to the broader small business community operating above the R1m threshold, but he assumes that budget constraints probably limited the scope for such a concession.
Assisting growth and development
Nazeem Martin, MD of Business Partners, believes various points discussed as part of the budget will assist with the growth and development of small and medium enterprises (SMEs) in South Africa.
“We welcome the minister’s commitment to small business, as the development of SMEs can drastically reduce the high unemployment rate the country faces. Unlocking the potential of small enterprises has been identified one of the minister’s nine strategic priorities to be pursued this year, and the new ministry of small business development has been allocated R3.5bn for the mentoring and training support of small businesses," said Martin.
“We support the proposed tax regime for businesses with a turnover below R1m a year, which will see businesses with a turnover of less than R335 000 a year pay no tax, and the maximum rate being reduced from 6% to 3%."
In addition, the establishment of small business desks at the SA Revenue Service (Sars) will assist SMEs to comply with tax requirements, which can often be challenging.
"We hope that this additional support will ensure that less time is spent complying with the various processes," said Martin.
“We sincerely hope that government will honour the commitment, made by President Jacob Zuma in his State of the Nation speech, to ensure that 30% of government procurement is for SMEs. And more importantly, that SMEs are paid timeously, preferably within 30 days of invoice."
This will provide SMEs with the opportunity to grow and develop at a faster rate and assist in boosting job creation and economic development, in his view.
Change in tax regime
The proposed changes to the small business tax regime could be a first step to bringing a greater percentage of the informal sector into the tax net, according to Anthea Scholtz, tax partner at Deloitte.
She regards it as a long overdue more generous tax regime for small businesses.
"Whilst Sars has achieved steady successes in broadening the tax base and bringing small businesses into the tax net, the progress bringing small businesses operating in the informal sector into the South African tax net, has been slow," she explained.
"In South Africa and globally, it is extremely difficult to broaden the tax base in the informal sector and a large part of this sector continues to slip through the noose of tax authorities - even as governments continue to grapple with the complex problem of how to avoid this."
For tax director at Deloitte, Billy Joubert the government made important strides to simplify tax compliance for small businesses.
For Christo van der Rheede, CEO of the AHi business chamber, the budget speech is a brave attempt to keep the economy on track.
"The question remains however whether the pronouncements by the minister is enough to create an environment that wets the appetite of the private sector to invest in infrastructure development," he said.
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