There’s no question that the prolonged economic downturn has taken its toll on small businesses. Factors such as loadshedding have threatened the survival of small and medium enterprises (SMEs), many of which are buckling under the additional pressures of the rising cost of fuel and food. In light of the upcoming election, 2024 will likely by a watershed year for the country and now, with the fast approach of the Budget Speech, local SME owners will look to the state for practical solutions to their biggest challenges.
Budgeting beyond energy
Last year, Minister Godongwana’s Budget Speech focused almost exclusively on the energy crisis. The speech proposed initiatives like the Energy Bounce Back Scheme as a way of providing micro and small enterprises with much-needed financial relief from the business disruption caused by loadshedding. The Scheme was in fact one of the most talked-about components of the speech – hopes remained high that the uptake of the scheme would significantly outstrip the poor deployment of the COVID19 relief scheme.
Despite the launch date of April 2023 being put forward in the Budget Speech, as late as July 2023 the Banking Association of South Africa reported that financial institutions were still involved in negotiations with the National Treasury and the SA Reserve Bank on the terms of the loan. Several banks opted not to participate in the scheme, while others may be pushing for more relaxed qualifying criteria.
This year’s State of the National Address (SONA) once again affirmed the state’s ongoing and ardent focus on putting an end to loadshedding. But, “now is not the time for small businesses to be left in limbo while the lights are out,” says Jeremy Lang, Chief Investment Officer at Business Partners Limited.
All eyes on infrastructure
Expanding on what the SME sector will be paying close attention to during the upcoming Budget Speech, Lang asserts that investing in infrastructure will be crucial for the future of the industry. The delays at the Durban port in 2023 coupled with the deterioration of local rail and port transport put pressure on the local SME sector.
The knock-on effects of these; and other infrastructural challenges, was widespread supply chain disruption, which exacerbated the struggles of small businesses across multiple sectors. According to President Ramaphosa, the state is doing much to turn the tide against this dilemma – he reported that by the beginning of 2024, projects worth over R230 billion were under construction, with projects worth almost R4 billion having been completed.
Improved infrastructure, including reliable electricity, internet connectivity, and transportation networks, is essential for small businesses to operate efficiently and compete effectively.
For this reason, “In this year’s Budget Speech, small business owners will likely be looking for indicators of the progress of initiatives such as Operational Vulindlela in terms of the fast-tracking of reforms in electricity, water, telecoms and transport. Addressing institutional inefficiencies in municipal water and sanitation services, migration from analogue to digital and addressing the efficiency of ports seem to be lagging behind and SMEs will want to know what is being done to improve on these areas,” says Lang.
A call for much-anticipated tax reform
Other key developments that would aid the recovery process of the SME sector relate to taxation. Ahead of last year’s Budget Speech, it was Business Partners Ltd’s position that the tax exemption for SMEs qualifying as small business corporations should be revised to account for inflation, but also to include enough provision for small businesses to gain traction and benefit from substantial financial relief.
In 2012, the system of turnover tax was introduced by the government, to alleviate the tax burden on micro enterprises and assist them in better managing the administrative process of submitting information to SARS and paying taxes.
As Lang concludes: “In the same way that the personal tax exemption should be upwardly revised by a big enough margin to make a material difference, turnover tax tables should also be revised accordingly. Since 2012, turnover tax became available to enterprises with an annual turnover of R1 million of less. These enterprises are taxed at a much lower rate than other provisional tax payers.
Over a decade later however, this threshold remains unchanged. A welcomed development would be for this threshold to be increased to account for inflation, bringing more enterprises into the fold and significantly lowering their tax obligations.
This year’s Budget Speech will be a big one for all spheres of society, including the many existing and aspiring entrepreneurs whose confidence needs to be uplifted so that we can truly invest in the sector we know is crucial to social and economic development.”
About the Author: Jeremy Lang
