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 Pre-Budget 2018 commentary

 Government to bolster SME ecosystem to minimise shortfall

 Following an inspiring and predominantly growth friendly State of the Nation Address (SONA) on Friday, 16 February by President Ramaphosa, South Africa now gears up to find out how National Treasury plans to minimise the country’s revenue deficit, currently at an estimated R50.8 billion.

Speaking in light of the upcoming 2018 National Budget Speech, Ben Bierman, Managing Director at Business Partners Limited (BUSINESS/PARTNERS), says that although Treasury must consider lowering expenditure and increasing income tax rates such as VAT to decrease the budget deficit, it is also critical to focus on delivering a business friendly budget in order stimulate economic growth.

To do this, Bierman hopes to see a focus on creating a more conducive environment for small and medium enterprises (SMEs). “Consistent with the SONA, Treasury should emphasize the role that SMEs play in the broader economic environment, and announce measures to boost SME business formation and businesses growth, which will in turn positively affect job creation – something that SMEs are recognised for. We expect Treasury to announce increased budget allocations to the various entrepreneur friendly initiatives such as small business incubation.”

One change that Bierman says could make a significantly positive impact on the country’s SME sector is to lift the taxation thresholds applicable to SMEs, such as Small Business Corporation Tax and Microbusiness Turnover Tax. “The tax laws provide relief to small businesses with revenues and profits below certain thresholds, easing the administrative and compliance burden. If Treasury opts to increase these thresholds, more South African SMEs will qualify for the tax relief.”

Secondly, Bierman says that Treasury should continue to implement measures that could help SMEs to operate more effectively. “We hope to see stronger commitment and increased action to ensure that all Government departments and corporates prioritise paying their SME suppliers on time. Efficient payment processing can have a massive impact on the growth, the sustainability and the survival rate of SMEs as often these businesses don’t have the resources to deal with payment that are delayed for longer than 90 – 120 days for payment,” Bierman explains.

In terms of the year ahead, Bierman is hopeful that under the leadership of President Ramaphosa, Government will indeed address policy certainty through the support and input of the soon to be established Presidential Economic Advisory Council as announced at the SONA.

Bierman adds that the SONA promise to reduce regulatory barriers for small businesses should see Government repositioned to improve efficient policy administration and implementation at all three spheres of Government. Efficiency and policy certainty will encourage cooperation between investors business, government and labour. “Small business owners should belief the rising tide will lift all the boats, including the SME boats, and that the increase in business optimism, the possibility of new infrastructure projects will lead to higher growth and possibly increased consumer spending, despite the inevitable increases in the tax burden for individuals.

He adds that SMEs are a vital ingredient in getting South Africa’s economy back on track. “Despite the challenges that Treasury faced last year, we believe that the country’s economy has turned a corner, and that there is a high probability that the SME sector can meaningfully contribute towards our economy growing at a much faster rate than witnessed over the past two years. A budget speech that drives inclusive growth and priortise the role small business will provide impetus to job creation and a higher economic growth trajectory.”

Bierman explains that SMEs need to ensure that they have sufficient resources available to take advantage of the growth opportunities. “This includes having the right team on board to grow the business, and having sufficient financial resources available to invest in key assets and to meet the working capital demands of growth,” he concludes.

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