This week, Finance Minister Tito Mboweni delivered his Budget Speech for the 2021/22 financial year. There was some good news for consumers, as the Minister’s speech contained very few tax hikes. Though no SME-specific amendments were noted, there was more good news with favourable budgetary amendments for business owners throughout every market sector.
Here are five key takeaways for the local small-and-medium enterprise (SME) sector:
1. Corporate taxes decrease, but not really
While this may be more relevant to larger businesses, it is interesting to note that the corporate tax rate has decreased from 28% to 27% for the next financial year. The drop in tax is likely to attract more international companies to South African shores, which could in turn spur creating more business opportunities. However, the Minister said that Treasury would also be limiting assessed losses and interest expense deductions. In effect, this means that companies may not actually see a decrease in their tax spend after all.
2. Government’s initiatives to support economic recovery
This year’s Budget Speech did show that Treasury is in fact sensitive to the economic struggle that consumers and businesses are facing, which is likely why no major tax increases were announced. In addition, Minister Mboweni indicated that the Government would be extending short-term economic support and undertaking reforms to stabilise public finances. He also made mention of the Government’s planned economic reforms that will remove barriers to growth, lower the cost of doing business, and bolster confidence and investment – particularly in relation to restructuring the electricity sector and ensuring sufficient supply.
3. Lower data costs on the horizon
Another good sign for small businesses especially, is that Treasury is recognising the importance of more affordable data. Particularly, the Minister said that reducing the cost of broadband and other costs of doing business forms part of the measures of the Economic Reconstruction and Recovery Plan. He also urged the Government to accelerate the auctioning of the digital spectrum.
4. Help for the tourism sector
The Tourism Equity Fund (TEF) – one of the measures to support the tourism sector recovery – has been established by the Department of Tourism. This R540 million fund will finance the acquisition of equity stakes in existing tourism enterprises, support expansion of operations and development of new operations. If successful, this fund has the potential to begin bolstering one of the hardest hit sectors from the last year. Beneficiaries are expected to include tourism enterprises from villages, townships and small towns.
5. The loan guarantee scheme
A loan guarantee scheme was introduced to support certain businesses affected by COVID-19 and the resultant lockdown, for which Treasury provided a R100 billion guarantee to the Reserve Bank with the option to extend to R200 billion. By 11 February 2021, loans of R89.8 billion had been approved with drawdowns of R13.3 billion, which indicates there should be money left in the pot to help more businesses.
While times are undoubtedly still very tough for businesses and consumers alike, the above indicates some steps in the right direction towards recovery for the country.