Government tackles difficulties of SMEs

THE government has finally responded to long-standing pleas from business to support small and medium enterprises (SMEs).

Finance Minister Pravin Gordhan unveiled a list of proposals in his budget speech aimed at making it easier for entrepreneurs to get up and running and ease the burden of time-consuming and expensive compliance regulations.

He also announced that the government would spend R6.5billion over three years to help the sector, which accounts for about 60% of employment and a third of economic output.

Research shows that about 60% of new businesses fail in their first 18 months.

“This is a comprehensive set of initiatives which far exceeds our expectations,” said Neren Rau, chief executive at the South African Chamber of Commerce and Industry.

The SME reform suggestions were compiled by the Davis tax review committee after extensive consultation with small business organisations, and were presented to Gordhan last month. The committee was set up in July to examine the policy and its role in achieving growth, employment, development and fiscal sustainability.

The committee proposed that turnover of up to R335 000 for an SME should not be taxed and that companies submit returns once a year rather than twice.

It said the current regime provided tax relief to only 50 000 businesses and professions not originally intended as beneficiaries. It proposed replacing the reduced tax-rate framework with a yearly refundable tax compliance rebate.

“Government accepts this recommendation, subject to public consultation,” the Treasury said in its budget review.

It was proposed that funders investing in SMEs through venture capital companies should be able to claim tax deductions on their invest- ments, and grants received by SMEs should be exempt from tax.

Capital gains tax on the sale of assets would be waived, and the total asset limit for qualifying investee companies raised to R50-million from R20-million, and from R300-million to R500million in the case of junior mining companies.

Business Unity SA welcomed the “prompt and concrete responses” to support small business and encourage entrepreneurial development.

Jacqueline Coosner, director of Incus Data, viewed the proposals as “a step in the right direction”, but said they failed to ease the compliance burden.