Tax concessions needed for SMEs

EXPERTS SAY GOVT MUST REDUCE RATE OF TAXATION TO CREATE JOBS AND BOOST THE SECTOR Suggestions include tax holidays and reducing red tape around VAT, but the costs of compliance are also impeding small business.

The existing tax concession for small business corporations (SBCs) is welcome but if government wants the sector to flourish and facilitate job creation, it must be bolder in its approach, tax practitioners argue.

Faith Ngwenya, technical executive at the SA Institute of Professional Accountants, said SBCs pay a 28% tax on their taxable income above R550 000, equal to the corporate income tax rate.

“If we really are serious as a country that we want to see small businesses growing, we need to reconsider that. We need to be thinking out of the box,” she said.

The special tax regime for SBCs was introduced in 2001 to encourage development and investment.

The National Development Plan envisages that small businesses provide 90% of new jobs by 2030, but while the sector’s seen as an engine for economic growth and job creation, it also poses a challenge for revenue collection.

Veli Ntombela of SizweNtsalubaGobodo said some of SA’s neighbours offer tax holidays of 10-15 years for investments that facilitate job creation.

He applauded tax concessions offered for small business corporations, but said to encourage employment, the provisions must be amended to reduce tax rates even further, where small businesses employ larger groups of people. Government could potentially also offer tax holidays.

John Hanssen of SA Revenue Service (Sars) said according to the most recent tax statistics, about 102 000 SBCs are in operation: 34% are in an assessed loss situation and 15% at break-even point. About 52% collectively have taxable income of R14 billion, with assessed taxes of R1.9 billion.

Hanssen argued that the SBC regime is working: it facilitates some job creation and bigger businesses with gross income of up to R20 million qualify too.

Ngwenya said red tape is one of the reasons for the high failure rate among small businesses. Requirements that they must be VAT registered to do business with government is one hindrance.

Hanssen said new VAT regulations had been introduced and where businesses earned income of less than R50 000 and met certain conditions, they could apply for a VAT number. However, some companies abuse the regulations by hiding their businesses in smaller businesses to remain under the threshold, he added.

To reduce the tax compliance burden, a VAT vendor category (F) was previously introduced for businesses that only filed returns three times a year.

“That has been scrapped. People weren’t using it. Why? Because they want their money [VAT refunds] quickly.”

Deon van Zyl of PKF added that the cost of compliance must be considered.