|Is the Davis Tax Committee a saviour for small businesses?|
12 August 2014:
The Davis Tax Committee (DTC) has made a bold opening move with the release of its first interim report: The Small and medium Enterprises (SME): Taxation Considerations, Interim report July 2014.
According to Erich Bell, Tax Technical at the South African Institute of Tax Professionals (SAIT), the DTC report contains a number of exciting proposals aimed at developing the SME sector through strategic tax reforms and thereby fulfilling the objectives laid out in the National Development Plan.
In the second series of his article, Bell continues to examine the most significant proposals that will come under Finance Minister Nhlanhla Nene’s careful consideration for the 2015 Budget speech.
The DTC recognise that education and skills development are vital for the well-being of the economy. The DTC report proposes tax incentives that will assist and reward the employer for providing training and further education for their employees and their relatives. The report suggests that the employer pays no tax on the fringe benefit from bursaries or scholarships offered to their employees or relatives studying towards a qualification of NQF level 5 or higher.
Furthermore, in perhaps their most remarkable proposal, the DTC recommends that a training incentive of 150 percent is offered to encourage SME’s to offer further training for their employees and their families.
Good news for “Angel Investors”
Another proposal which SAIT hopes will see the light of day come 2015’s Budget Speech will make it easier for micro businesses to attract investors and outside capital. The proposed Bad Debt Allowance entitles investors to a full write-off of failed micro business investments where currently these investors are penalised with limited benefits only in the form of Capital Gains Tax relief for lost capital.
Cost compliance from a VAT perspective.
The DTC proposes that Small Business Corporations (SBCs) – as defined in the Income Tax Act – be allowed to account for VAT on the payments basis, even though the total value of their taxable supplies may have exceeded R2.5 million per annum. At present vendors are required to account for VAT on the invoice or accrual basis, which places an additional compliance burden in the absence of a comprehensive accounting system.
It is further proposed that SBCs should be exempted from the requirement to estimate their taxable income for provisional tax purposes at year-end as often they do not have the internal resources to achieve an accurate measurement until after year-end.
The long lead time and delays by SARS to release VAT refunds contributes to the challenges faced by many SBC’s who rely on refunds to maintain a positive cash flow. The report calls for SARS to implement stringent time limits on the VAT refund process and to establish a help desk to assist small businesses with the refund process.
The Employment Tax Incentive (ETI)
In cases where the ETI refund exceeds the PAYE liability, the DTC report suggests that SARS prioritise the cash refund to assist small businesses with their cash flow.
Focus on Small Business Development
The DTC recommends that the Department of Trade and Industry and the Ministry of Small Business Development play a bigger role in the growth of the small business community. Large business and universities are also tasked to become more involved in the development of entrepreneurship through social investment initiatives. The report recommends that SARS provides deeper clarity on the tax treatment of these initiatives.
It has been nearly twenty years since the Katz Commission last reviewed the applicability of South Africa’s tax system in the global and local context. While the DTC report may read like a taxpayer “wish list”, SAIT will continue to engage with its members, the community and the government in order to simplify the impact of the tax system on the small business sector of the economy. Stiaan Klue, Chief Executive of SAIT is confident that the National Treasury will pay careful attention to the DTC proposals before announcing any reforms at the 2015 Budget Speech.