MAVERICK BUSINESS ANALYSIS South Africa’s enterprise sector critically ill
DAILY MAVERICK / 27 MARCH 2019 - 13.22 / JOHANNES WESSELS
The parlous state of the enterprise sector in SA can be seen in dismal company income tax receipts over the past five years, which are declining and very heavily weighted in favour of large companies. The decline in profitability means 74% of all companies pay no tax at all and the vast majority of company tax receipts come from just 0.09% of SA’s corporates.
The formal South African Enterprise Sector is critically ill. Were the company tax returns of the 768,000 companies combined and submitted as that of a single entity (say SA Amalgamated Pty Ltd) there would not have been any Company Income Tax (CIT) payable to SARS for three consecutive tax years.
SARS data on Company Income Tax (CIT) confirms that the private sector is in a dismal state. In the tax years 2014 – 2016 assessed joint losses of all companies surpassed joint taxable income by R445-billion.
SARS data on CIT from 2007 to 2016 on assessed CIT returns bring the following to the fore:
Total assessed taxable income of companies had increased over the 10 years by R248.19-billion or 52.3% to a total of R722.6-billion
Total assessed losses of companies had more than tripled from R236.3-billion in 2007 to R820.2-billion in 2016.
CIT increased by R59.92-billion to a total of R198.76-billion in 2016 (43.3% increase on 2007).
To understand these figures, it is important to keep the following in mind:
If the CIT collected in 2007 had increased annually at the CPI inflation rate, Treasury would have received an additional R52.8-billion on top of the R198.8-billion it did receive in CIT in 2016. Assessed taxable company income and CIT lagged significantly against inflation.
For assessed losses for 2014 to 2016 of R2,482.2-billion form a massive debt mountain that, should the environment for those SA businesses improve, the companies will first gobble up these losses before they become liable for CIT again.
The only reason why Treasury still reaps income from CIT, is because a small minority firms remains profitable. These are mainly companies with a taxable income of R10-million and more. In fact, the percentage of tax-paying companies has declined from 27.9% in 2007 to 24.23% in 2016.
Only 0.75% of the firms with taxable turnover above R100-million pay 85% of all company income tax into SARS coffers.
With 42% of the 2017 company tax returns already assessed by SARS, a fourth year of being in the red seems most likely. Consider in addition:
The dismal GDP growth of 0.8% in 2018.
The additional medication of Expropriation without Compensation being added to the anti-growth BEE treatment.
Electricity tariff increases double the inflation rate to finance an entity that is incapable of ensuring a constant energy supply.
A public sector that had metamorphosed from a facilitator of services and infrastructure into a parasite not delivering proper education, proper law enforcement and reliable infrastructure.
Mike Schüssler of Economist.co.za reckons that indicates that since mid-2018 the turnover growth of companies in the non-financial sector is negative when considering inflation.
Based on Angelo Agrizzi’s evidence at the Zondo commission about bribe money, one can state that he had packed annually stacks of bribe money that exceeded the taxable income of 98% of the country’s formal enterprises.
The government appears to be totally unaware of the negative impact of its policies and poor performance on the private sector, especially the small and medium enterprises.
Johannes Wessels is the Director of the Enterprise Observatory of SA.
LINK : https://www.dailymaverick.co.za/article/2019-03-27-south-africas-enterprise-sector-critically-ill/?tl_inbound=1&tl_groups=80895&tl_period_type=3&utm_medium=email&utm_campaign=Business%20Maverick%20Wednesday%2027%20March%202019BLSA&utm_content=Business%20Maverick%20Wednesday%2027%20March%202019BLSA+CID_fa3113d363c2fcdae7579cef9f589071&utm_source=TouchBasePro&utm_term=South%20Africas%20enterprise%20sector%20critically%20ill
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER