How bureaucrats are killing small business
21 November 2014
Posted by: Author: Nazmeera Moola
Author: Nazmeera Moola (Investec Asset Management)
Simplifying tax regulations and company
registration procedures for small businesses would help the quest for job
creation a great deal
SA spends a lot of time talking about the need to
support entrepreneurship. Small businesses have been responsible for the
majority of private-sector job creation in the past two decades. In his
post-election May 2014 cabinet rejig, President Jacob Zuma created the ministry
of small business development.
In an address in late September, small business
development minister Lindiwe Zulu pointed out that "the recognition of the
importance of small and medium enterprises came at the right time, because the
economy is struggling and we need to upscale on SMMEs"..
She went on to discuss her plans to support small
business, which "will focus on educating business owners and
entrepreneurs, giving them access to information on potential markets and
connecting them with sources of financing as well as support structures".
There would also be more pressure on government departments to procure from
These are all excellent intentions. However, they
do not address the fundamental problem: increasing government bureaucracy that
makes it ever more difficult for small businesses to function.
SA’s increasing regulatory burden on SMEs has
become a pet peeve of mine, second only to the poor education system. The World
Bank’s 2015 Doing Business index was published two weeks ago. It points
out that the survey aims to shed light on "how easy or difficult it is for
a local entrepreneur to open and run a small to medium-size business when
complying with relevant regulations".
The latest survey (2014) shows SA slipped from 37th
to 43rd out of the 189 economies surveyed. Of the 10 major categories, the main
decline was in "access to credit", which fell 22 places. However,
there was also deterioration in "starting a business",
"registering property" and "resolving insolvency". All
three are critical for small businesses.
In the SA report, a graph was included of the
ranking in each of the 10 categories in 2010, 2014 and 2015. It stayed broadly
stable in seven of them, deteriorated a bit in "starting a business",
fell notably in "registering property" and plunged in "trading
For a small, open economy far away from its
suppliers and customers, this is a major problem. SA ranks 100th in the world
in this category, due mainly to cumbersome bureaucratic documentation
requirements and onerous customs procedures.
Therefore minister Zulu would be far more useful to
small businesses if she focused on two areas. First, convince her colleagues in
the Department of Trade and Industry (DTI) that cumbersome regulation, however
well intentioned, will strangle small businesses and thus job growth. Every
piece of regulation that the DTI produces should be vetted by a panel of
experts who understand small businesses. There are plenty of retired small
business owners who could provide real-world insights often sorely lacking when
regulations are compiled.
The second area Zulu should focus on is the SA
Revenue Service (SARS). A
July 2013 research paper from the University of Pretoria found
"SARS has only partially addressed the complexity of the tax law, the lack
of software to assist small businesses with their record-keeping and the
compliance burden associated with provisional tax".
This tied in with an older EY survey of accountants
and bookkeepers who service SMEs. It found "penalties and interest
incorrectly raised by SARS is the most burdensome aspect of this tax. In such
cases, small businesses invariably have to incur the additional costs of a tax
practitioner to ensure the matter is resolved."
Singapore tops the survey, followed by many
developed economies. However, South Korea ranks fifth, Malaysia 18th, Thailand
26th and Mauritius 28th. Simplifying tax regulations and company registration
procedures for SA small businesses would help a great deal.
This article first appeared on rdm.co.za.