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 Now is the time for a pro-SME Budget

 

 In year that promises better economic growth than that of the past few miserable ones, South Africa's business owners are likely to follow this month's tabling of the national Budget with more interest than usual, says Siphethe Dumeko, Chief Financial Officer at Business Partners Limited, the leading local risk financier to small and medium enterprises (SMEs).

Any measure that can boost the economy beyond the projected 1.1% growth for the year is at the top of the Budget wish-list of South Africa’s SMEs, together with the hope that, first, no harm is done by further political turmoil – the number one Budget for SMEs is stability in the economic cluster.

The promise of overall business growth means that the time to enhance specific support measures for South Africa’s small businesses in the Budget is now, says Dumeko, as the tweaks and incentives aimed at SMEs that normally spice a Budget also work to stimulate growth in the economy. However, the impact of these schemes is only really effective when they are made at scale.

Even though 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 taxable income.

Business owners would like to see the R20m turnover cut-off increased, as well as 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.

Perhaps following President Zuma’s luncheon with captains of industry ahead of the State of the Nation Address, even more important for SMEs than tax breaks is confirmation of the budget allocated to Invest SA – One Stop Shops to prove the much needed red-tape relief. Dumeko says one of the heaviest compliance burdens on small businesses is the requirement that VAT must be paid on an invoice basis instead of a cash basis. Every time a business issues an invoice, the VAT becomes payable immediately, irrespective of when the invoice will be paid.

Having to pay VAT over to SARS for money not yet received is an enormous, sometimes fatal, drain on the cash flow of small businesses as some procurers are notorious for not paying invoices timeously.

In the nineties, small businesses below a certain size used to be allowed to pay VAT only when they received payment, but it was scrapped after syndicates used the exemption to create false VAT claims against SARS. Restoring the exemption 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, says Dumeko. While SMEs are generally responsible corporate citizens, paying VAT is not only a cash-flow burden, but also requires intensive paperwork which growing businesses should be able to do without for as long as possible.

Apart from exemptions, South Africa’s entrepreneurs will welcome positive support measures in the Budget, although the chances are that they will be limited as austerity continues to bite.

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.

A report-back on the SARS support desks announced last year to help small and medium businesses with tax compliance can be expected, says Dumeko. Also, the government is yet to announce its contribution to the R1, 5 billion Invest SA – SME fund, a joint project between the public and private sector initiated last year. A Budget speech containing such a commitment would send a strong growth message.

Without costing anything, Treasury can enhance the impact of existing funds aimed at developing and supporting entrepreneurs through closer cooperation with private-sector players, says Dumeko.

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 are one 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 imposed on tourists to South Africa recently.

Provided South Africa can maintain a stable political environment this year, the Budget is bound to contain some growth opportunities for entrepreneurs, says Dumeko. And given the outlook for growth that can be achieved this year, South Africa’s entrepreneurs are a major investment opportunity for the government.

Post-Budget Speech commentary:

The 2017 budget allocates funds over the MTEF period to support economic growth in various
Programmes which auger well for economic growth and SMEs:

  • R3.9 billion for small, medium and micro enterprises and cooperatives.
  • R4.2 billion for industrial infrastructure in special economic zones and industrial parks.
  • R1.9 billion for broadband implementation.

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