On 4 October 2022, the Free Market Foundation (FMF) launched the first booklet in a series of eight titled Laws Affecting Small Business. Economist Dawie Roodt interrogated South Africa’s taxation regime and its effects on small business, and outlined the proposed recommendations.
From its segregated past, South Africa inherited a tax regime that is highly complex and focused mainly on “higher” income individuals.
A complex tax regime creates undue compliance costs for small businesses. Also, excessive government expenditure burdens the economy because it necessitates a higher tax liability and onerous obligations on individuals and enterprises.
Another problem identified in Laws Affecting Small Business – TAX, is how small businesses are taxed on profits for sales that are invoiced before becoming due (with narrow exceptions in the case of allowable deductions off taxable profits regarding equipment purchased). The fact that many small firms must remit expected VAT collections to SARS before they receive them is another inhibition caused by taxation law.
Laws Affecting Small Business – TAX makes recommendations that should be championed by those who care about the success of small businesses.
These include adopting a new, simplified Income Tax Act within the next two years to govern the taxation of the first part of any taxpayer’s income (say, commencing with R350,000 and adjusted automatically for inflation every year). Reducing government expenditure at all levels to below 25% of GDP, which will influence the tax burden on the economy, is also recommended.
Other recommendations include amending section 12E of the present Income Tax Act to allow small firms to deduct the cost of all capital equipment from their taxable incomes in the year in which the cost is paid, not just the cost of plant or machinery used in manufacturing. Small firms consisting of natural persons and partnerships of natural persons, should, additionally, be granted a tax deduction.
It is further recommended to increase the threshold below which the payments basis for accounting for VAT by natural persons and unincorporated bodies of natural persons is permitted from the present R2,500,000 per year to R13,500,000, and to extend the concession to companies.
There are many other recommendations in the booklet on how to best change the taxation regime in South Africa so as not to inhibit our economic growth by being too burdensome on small businesses.
Economist Dawie Roodt echoed the sentiments during his launch of the booklet where he stated, “Taxes are one of the primary brakes on an explosion of growth by small and medium enterprises. The government wants the economy to prioritise the coffers of state departments, not the welfare of ordinary South Africans.”
Small businesses are the engine of the South African economy, and therefore the legislative instruments governing them are integral to creating an environment of growth and job-creation, and thus enabling a more prosperous South Africa.
Laws Affecting Small Business – TAX can be read HERE.
This was the first in a series of eight mini-launches to introduce recommendations to reduce the laws affecting small business across a range of issues: tax, land, licensing, justice, labour, finance, health, schooling.
Launch dates and speakers
04.10 | 1100-1130 – Dawie Roodt – TAX
11.10 | 1100-1130 – Terence Corrigan – LAND
18.10 | 1100-1130 – Neil Emerick – LICENSING
25.10 | 1100-1130 – Langa Bodlani – JUSTICE
01.11 | 1100-1130 – Michael Bagraim – LABOUR
08.11 | 1100-1130 – speaker to be confirmed – FINANCE / HEALTH / SCHOOLING
15.11 | 1100-1130 – speaker to be confirmed – FINANCE / HEALTH / SCHOOLING
22.11 | 1100-1130 – speaker to be confirmed – FINANCE / HEALTH / SCHOOLING