1 TApart from the pure administrative burden, however, local SMEs are not given the tax relief and incentives that would see them through the diff icult start-up phase and ultimately grow the business into a sustainable and profitable entity. According to Mike Anderson, founder of the National Small Business Chamber ( NSBC), around 80% of start-ups shut down within the f irst 1 000 days because of tax-related challenges coupled with high bank charges. “Tax is a major issue for the majority of small businesses that we work with,” says Anderson. “It is incredibly complicated and hard for new business owners to get right.”
In the NSBC 2012 Small Business Survey, VAT registration, tax exemptions, cross-border trade as well as import and he current tax structure and requirements for SMEs and start-ups represents a massive hurdle to simply just opening for business – and is almost always listed as a major challenge for the sector. “The problem for small businesses, and especially start-ups, is that not only is the tax legislation complex to read and understand, but operationally it is also difficult to get registered for certain taxes – such as VAT,” explains Sharon Smulders, Head of Tax Technical & Tax Research at the SA Institute of Tax Practitioners (SAIT). Smulders says that there have been cases where it takes months before a small business can register for VAT, and then once it is registered, it is hit by penalties and interest on late payment/incorrect VAT treatment. “A small-business owner does not have time to focus on tax (understandably so) and thus needs to get the assistance of a tax practitioner that could be costly for a startup or small business,” she adds. export taxes were cited as the most important legal issues for SMEs. Government did introduce some measures to address tax challenges in its latest Budget, such as raising the corporate tax turnover threshold from R14m to R20m, but many were disappointed by the scope of the proposed reforms.
“It would have been good if the threshold for the small business corporation (SBC) regime was increased to R50m aligning with the dti’s proposed change to the BBEEE categories of exempt micro enterprises and qualifying small businesses,” says Smulders. “This would not only have streamlined the definition of small businesses to some extent, but would also have increased the number of small businesses that could access this tax regime.”
She adds: “A lot more research needs to be done on the incentives currently available to small businesses as their effectiveness in some cases is doubtful.” Anderson suggests that new businesses with a turnover of under R35m should be exempt from all tax until they reach a certain threshold.
We could also look abroad for examples of ways to incentivise our SMEs. Many countries, including BRICS members such as Brazil and India, have effective small-business incentives in place. Singapore has a tax exemption scheme for all new start-ups (that meet certain criteria) that exempts approximately R1.4m of the normal chargeable income of these companies for the first three consecutive years of assessment. “We need to start allowing small businesses to prosper – and when they do, everybody wins,” Anderson adds. Given the integral role that SMEs play in the country’s economic development, some have proposed the idea of establishing a dedicated ministry for the small-business sector. “It is basically a no-brainer for our Government to invest money and create a dedicated, coordinated approach to promote and support the small business sector,” says Stiaan Klue, chief executive of SAIT. “Currently three ministries are broadly responsible for SMEs in South Africa: finance, economic development, and trade & industry. This is typical of our system in South Africa – we riddle systems with red tape, hence stif ling small businesses.” He adds: “The system will definitely be more effective if it is centralised in a dedicated ministry, reporting directly to the president.”
While such a ministry sounds promising on paper, there are many who are sceptical whether such a department would have any impact. “There has been quite a lot of talk around this, and while in theory it seems like an excellent idea, it can only work if it is apolitical, has a hardnosed business agenda and is prepared to f ight some tough battles (often with its own members) to create a truly enabling environment for business,” says Ressel. “As an example, how will SARS feel if the dti insists that for an SME to succeed, it needs to be excused from all taxes for the first five years of its existence? I am not entirely sure if such a body could function