|Tax profession welcomes ANC election ‘promise’ for small business ministry|
5 May 2014
ANC secretary general Gwede Mantashe on Tuesday renewed hopes that a ministry for small business will be created after the 7 May general election.
With an unemployment rate of 24.1% in the first quarter month of 2014, it is evident why the single most critical objective of the South African government’s “New Growth Path” is creating employment.
“Many tax practitioners who serve SMEs confirm that the tax administration burden is hampering the potential growth of the businesses. According to Prof. Sharon Smulders – Head of Tax Technical for the SA Institute of Tax Professionals -it is evident that most small businesses want to be tax compliant, but the tax system and the small business tax regimes do not entirely promote this.
“Furthermore, the actions of the government do not encourage compliance – R30.8 billion was wasted by public entities in unauthorised, irregular, and fruitless expenditure in 2013 – with not one public servant so far having been prosecuted successfully for contravening the Public Finance Management Act”, warns Smulders.
The inefficient services provided by SARS according to the 2014 SME Growth Index and the misuse of the tax revenues by the government can frustrate many small business owners. The frustration is of such an extent, that it is forcing some small business owners (who are employers) to consider closing their business (thus creating job losses). This is contrary to the dire need of this country for small businesses to thrive and create employment. Many small businesses feel that they do not have the capacity to deal with the complexity of the tax legislation as it currently stands but the costs of obtaining the services of tax practitioners are too high.
Stiaan Klue, Chief Executive of SAIT, comments that the tax profession and SAIT has been actively involved in trying to assist SMMEs and government in achieving an equilibrium between the need to simplify procedures for SMME’s and the need to maintain high standards of transparency which is needed for the easy detection of tainted situations. “SAIT has been engaging with SMMEs and provided input, submitted proposals and had meetings with the Davis Commission, National Treasury and the Impact Trust to discuss possible recommendations that could assist in promoting entrepreneurship and employment creation for this sector.”
According to Klue, SAIT has found is that the assistance and requirements imposed on SMMEs is fragmented, “Within SARS and Government, the responsibility for SMMEs is currently not centralised and no one-stop shop is available for these entities. The responsibility for SMMEs cannot be pin-pointed and appears to currently be between the Ministry of Finance and the Ministry of Trade and Industry. This is not desirable and thus the announcement that the ANC Government will be introducing a Small Business Ministry (that was first publically mooted at the 2013 SAIT Budget Breakfast) is most welcomed by SAIT and can be hailed as a milestone in South Africa’s history.”
This sector, and its contribution to the economic growth of South Africa, is critical if South Africa wants to regain its position as Africa’s largest economy from Nigeria and maintain its G20 status. “It is SAIT’s hope that this proposed Ministry will be tasked with specific and measurable objectives within the SMME sector,” adds Klue, pointing out the urgent need for centralisation of issues as well as accountability on the performance of the government in this regard.
“A philosophy of mutual respect by the government and business is essential for this Ministry to succeed, and should this respect be abused, the perpetrators should face be held publically accountable,” adds Smulders
According to reports from South Africa’s Finance Minister, Pravin Gordhan believes that employment creation will be the principal barometer of South Africa’s progress in its aim to achieve a more inclusive and equitable economic future for South Africa.
“In the 2011 budget review Finance Minister Pravin Gordhan stated that to achieve this objective, the government aims to create five million jobs over the next ten years, and it hopes that in so doing it can reduce the unemployment rate from 25% to 15%”, reminds SAIT CE Stiaan Klue. “The sector of the economy that will predominantly assist government in achieving this objective is the small business sector.”
Professor Sharon Smulders, SAIT Head of Technical Policy and Research, confirms that according to the Diagnostic plan: economy diagnostic of the National Planning Commission small, medium and micro-enterprises (SMMEs) contribute more than 40% of the country’s total GDP and account for more than 60% of all employment, with businesses that employ fewer than 50 workers accounting for 68% of private sector employment and 77% of all hiring that takes place.
“According to a 2010 FinScope study, small businesses in South Africa created 11.6 million employment opportunities in 2010”, says Smulders.
However, despite this critical role in the economy, the SME sector faces various challenges as is depicted in the following quote from a small business owner:
“I feel that the art of entrepreneurship is being oppressed by red tape and administration. This makes it very difficult for small business to have a competitive edge. I counted and just in my business I need to submit on a yearly basis round about 45 statutory documents and forms. For small business owner that is not trained and competent in the administration of a business this is a huge amount of work that needs to be correctly submitted to the various stake holders with severe penalties and interest imposed if there is no compliance on their regulation”.
“It is clear from the above, and from research performed in South Africa that the South African small business population is still in need of reform and specifically tax reform that will assist in minimising SMMEs regulatory burdens in relation to taxation and their tax compliance costs so that this sector can concentrate on one of the country’s primary needs – job creation. The proposed Ministry for Small Business is a welcome step in the right direction”, concludes Smulders.
2016 Personal Income Tax - Potchefstroom