Small businesses play a significant role in job creation, poverty reduction and economic growth. It is therefore crucial that the 2014 Budget Speech tackles the growing financial burdens and concerns of the SME sector, which includes tax and regulatory measures.
Small businesses play a significant role in job creation, poverty reduction and economic growth. It is therefore crucial that next week’s 2014 Budget Speech tackles the growing financial burdens and concerns of the SME sector, which includes tax and regulatory measures.
“There is no doubt that SMEs play a critical role in contributing to economic growth in South Africa. According to the Finscope 2010 study, SMEs currently provide about 6 million jobs in the country. Similarly, the Impact Trust found that SMEs contributed between 52% and 57% to the country’s GDP, and approximately 61% to employment. Yet, the 2013/2014 World Economic Forum’s (WEF) Global Competitiveness Report ranked South Africa 82nd out of 144 countries, based on the number of days required to start a business, indicating that red tape is preventing growth of the small business sector. It is vital that the Budget addresses how government intends to deal with these challenges,” explains Craig Aitchison, GM of Customer Solutions at Old Mutual Corporate.
According to research by the AfricaGrowth Institute, the key problems that most SMEs encounter are government taxes and regulations, red tape and the cost of regulatory compliance. Minister of Finance Pravin Gordhan last year indicated in the 2013 Budget that government was working to simplify the tax requirements for small businesses.
In addition, the 2013 fourth quarter Business Partners Limited SME Index (BPLSI) showed that 18% of respondents indicated less red tape and 19% indicated tax breaks as the type of assistance SMEs require from government.
“Based on the 2013 Budget indications by Treasury, we expect Minister Pravin Gordhan to express a continued interest in simplifying tax requirements for small business this year. To reduce the burden of the tax and regulatory environment on SMEs, government could consider exempting small businesses from certain labour laws as long it does not result in any infringement on the rights of workers,” explains Aitchison.
The BPLSI’s recent findings support Aitchison’s views: average confidence levels in the conduciveness to the growth of SA of the current labour laws remain low at 39%, indicating that SMEs remain vulnerable to the labour regulatory landscape in the country.
In addition to reducing the tax and regulatory burden faced by SMEs, Aitchison says that a dedicated focus on the advancement of the existing SME sector with a specialised Ministry could go a long way in ensuring the growth and longevity of SMEs sector in 2014.
“This Ministry should be equipped with appropriate budget and resources to advance the concerns and needs of the SMEs. The focused approach that occurred with the separation of The Department of Basic Education and The Department of Higher Education and is starting to pay some dividends as we are seeing an improvement in Matric pass rates across the country. By having a dedicated Ministry run by those that understand the specific challenges and opportunities in the sector, we should be able to see positive results even in the short-term,” says Aitchison.
Aitchison says another pressing issue that must be dealt with during the Budget is the Employment Tax Incentive Bill. “Government last year proposed an Employment Tax Incentive (Youth Wage Subsidy) aimed at closing the gap between productivity and real wages for young workers, which is a constraint in job creation. The youth wage subsidy is seen as a tool to reduce unemployment among the youth. We expect the wage subsidy to increase youth employment opportunities through the SME sector as a number of small businesses showed keen interest in the scheme. All eyes will be on the Minister to provide more certainty about the Bill and how it will impact the economy and the South African business sector,” concludes Aitchison.