“Government needs to show that it is serious about creating an enabling environment for small and medium enterprises (SMMEs) in South Africa, by increasing the R2.1 billion it has allocated to assisting them. Alternatively, the fund must be used as a guarantee that will allow the private sector to provide funding on top of this,” says Stefani du Preez, Director at Innovative Accounting Solutions.
Responding to Finance Minister Malusi Gigaba’s announcement that a fund aimed at helping start-ups is being developed by the departments of small business, science and technology and the treasury, du Preez says although the allocation is a positive move, R2.1 billion is not significant in relation to the larger budget.
“SMMEs are widely recognised as the building blocks of the economy. Without their contribution, sustainable growth cannot be achieved in South Africa. Given this reality and the fact that small businesses are operating in a particularly challenging economic environment, we believe government needs to review its contribution to promoting growth in the sector,” she says.
In addition, SMMEs are eagerly awaiting cabinet’s approval of the preferential procurement regulations that favour procurement from designated groups, including township and rural enterprises, black women and youth enterprises, cooperatives and people with disabilities.
“This move has been on the table for some time now and will make it mandatory for all projects or contracts exceeding R30-million to sub-contract a percentage of the work to designated groups, thereby promoting the growth of these SMMEs,” notes du Preez.
Given that many SMME’s struggle to survive because of late payments (or non-payments) from government, its proposal to ensure proper governance of public entities and encourage accountability is welcomed.
Du Preez says creating a more conducive environment for conducting business is long overdue. “The President’s promise during his State of the Nation address did not provide much detail to reduce regulatory barriers, except to say that competition authorities will continue to do the necessary and important work of addressing barriers to entry and rooting out anti-competitive behaviour which slows economic growth and dynamism. We need more details on what government intends to do improve ease-of-doing business in South Africa.”
As an increase in the VAT rate will relate to R22.9bn increase in revenue, there was no increase in the corporate tax rate.
The corporate tax rate is, however, high compared to other countries, even though there is some relief from SARS’ small and micro enterprise tax rates. At 28% many companies are compelled to shift profits abroad and pay less tax elsewhere.
“Many of the measures proposed by government are a step in the right direction, but need further clarity, commitment and action to make a meaningful impact on small businesses in the country,” concludes du Preez.