Jeanette Clark | 15 Feb 2023
The turnover tax system introduced in 2009 to simplify tax compliance for small businesses hasn’t been widely adopted, suggesting a need for greater awareness of it. Image: Adobe Stock
For South Africa to have employment-rich economic growth, SMEs need additional policies and support from government: Colin Timmis of Xero.
The eyes and ears of South Africa were fixed on President Cyril Ramaphosa’s State of the Nation Address (Sona) last week, in anticipation of some positive news regarding the energy crisis, declining economic growth, and any signs of hope in a challenging environment.
Small and medium-sized enterprises (SMEs) were part of that crowd, as the impact of Covid-19 lockdowns and persistent load shedding has made it difficult to stay operational.
A report by the Small Enterprise Finance Agency (Sefa) found that 71% of the agency’s funded clients have been negatively impacted by load shedding, and the majority reported that they require an alternative power source, such as a generator, to continue operations during power outages.
On a recent Small Business Conversations Podcast with Moneyweb, Small Business Institute CEO John Dludlu said the country needs approximately 39 000 to 40 000 new SMEs each year, to achieve the National Development Plan’s goal of 90% of all jobs coming from SMEs by 2030.
There was hope that Sona would announce measures to enable the ecosystem that could help SMEs reach this target.
Colin Timmis, country manager for South Africa at Xero, a provider of accounting software and digital solutions, was hoping for a more robust conversation on the crucial role of SMEs in fostering growth.
“It is essential to differentiate between different types of SMEs,” he says. “Those that employ people are critical to our economy and, in my opinion, should be the focus of policy and incentives to encourage more active participation and economic activity, so they can contribute to the tax system.”
SMEs in Sona
President Ramaphosa did speak on the state of small businesses in South Africa, unveiling initiatives aimed at promoting growth and sustainability.
“The government,” he said, “will finalise amendments to the Business Act this year to reduce regulatory barriers for small, medium, and micro enterprises as well as co-operatives, making it easier to start a new business in the country.”
The president highlighted the efforts of the Red Tape Reduction Team in the presidency, which has collaborated with various departments and agencies in streamlining processes related to mining rights, tourism transport operator licences, visas and work permits, and the informal sector.
Ramaphosa announced that the Sefa would provide R1.4 billion in financing to over 90 000 entrepreneurs. Furthermore, the SA SME Fund is working to establish a R10 billion fund to support SMME growth. According to the president: “The government is considering a contribution of R2.5 billion, with the balance of R7.5 billion to be raised from the private sector.”
What else is needed?
Timmis is confident that simplifying the tax system will have a significant impact. “The South African Revenue Service already has a clear vision and strategy, but I believe we could do a better job of promoting it.”
He highlights the low number of businesses that have adopted the turnover tax system, introduced in 2009 to simplify tax compliance for small businesses, possibly due to ignorance or a lack of understanding.
To further assist SMEs, Timmis suggests improving payment policies to ensure larger corporates and government pay these businesses on time.
“Many SMEs struggle with cash flow, so having policies in place that reduce late payments would improve their chances of success,” he says.
Timmis is also passionate about the benefits of digital platforms and tools for SMEs, saying: “There is a real opportunity in South Africa to revolutionise small business development through technology.” These tools can aid in payment collection and tax compliance, and provide easier access to financing by offering financial statements for creditworthiness assessment.
He proposes that the government consider an incentive scheme similar to the UK’s Help To Grow campaign, which offered a training programme for small business owners and subsidies for acquiring digital business tools. Although there was one reference to digital and technology skills development in Sona – with the National Skills Fund providing R800 million for skills development through a payment-to-training-to-employment model – no other incentives were announced.
Optimism and resilience, despite challenges
According to Xero’s ‘State of Small Business’ report, released last year, small business owners are optimistic about the future – 87% of respondents expressed confidence in their businesses and 99% expected to survive the following five years, which is a stark contrast to earlier, bleak predictions.
One in three businesses also stated that they plan to expand into new markets in the coming year.
Timmis states: “In the cohort of SMEs that we deal with, those that can afford digital tools and an accountant, this is the real on-the-ground feedback: businesses are doing better than ever.”
However, he acknowledges that there are still many small businesses struggling to overcome challenges. He hopes the upcoming budget speech will recognise these difficulties and applaud the resilience of small businesses.
‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.