Budget2021: Positive moves on income taxes, but the lack of focus on small businesses disappoints

By Opinion Time of article published Feb 25, 2021

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By Viresh Harduth

Many taxpayers will be thankful that Finance Minister Tito Mboweni’s Budget Speech for the 2021/2 tax year offers real relief for people in most income tax brackets rather than the painful tax increases that many of us expected. Yet, his Budget Speech also sets the stage for what is likely to be a slow and difficult recovery from the pandemic over the next three years.

According to the National Treasury’s forecasts, the South African economy is expected to rebound by 3.3% this year, following a 7.2% contraction in 2020. As such, we have a long road ahead of us before GDP grows back to its pre-pandemic size. While the Minister’s commitment to lowering barriers to entry, raising productivity and lowering the cost of doing business is laudable, his speech had few new ideas about how to do so.

Particularly disappointing from Sage’s perspective was the lack of focus on the small business sector. Many small businesses have had a difficult year due to the pandemic, and we have lost many of our wonderful small companies, especially in the retail and hospitality sectors, under the lockdown. We would have liked to have heard more ideas from Minister Mboweni about helping them to grow again as we exit the current crisis.

Proposed corporate tax reduction is welcome, but…

On the upside, the promise of a 1 percentage point reduction in corporate income tax for companies with years of assessment commencing on or after 1 April 2022 is to be welcomed. However, this will be of limited help to the many entities that are trading at a loss under the current market conditions. We could do more to reduce red tape for these struggling small businesses and create an enabling environment for growth.

The R1 million VAT registration threshold, for example, has not been changed for years. Raising it could relieve many small business owners of an admin headache and free their time to focus on growing their businesses instead. Steady increases of taxes such as the fuel levy also threaten to raise the costs of doing business.

In fact, Minister Mboweni hardly mentioned small businesses at all, which is a missed opportunity, given that entrepreneurs could have a key role to play in reviving the economy. It was also disappointing to learn that there will be no extension of the venture capital company tax incentive after 30 June 2021 due to poor uptake. We hope that government will learn from this experience and return with a similar programme - it could play a valuable role in financing and growing exciting new businesses.

Sustaining new businesses

We were interested to hear, however, that the Department of Small Business Development has allocated R4 billion over the medium term to township and rural enterprises, including blended finance initiatives. News that the Department of Tourism has reprioritised R540 million over the medium term to establish the Tourism Equity Fund (TEF) to support the tourism sector recovery is also encouraging. We look forward to more details.

The Minister also skirted over the issue of growing our country’s Fourth Industrial Revolution capabilities and digital economy, apart from mentioning that SARS has started to deepen its technology, data and machine learning capability. We would have loved to hear even more ambitious plans from government to use technology more effectively to reduce red tape for citizens and businesses.

Where is the technology focus?

If the pandemic has highlighted one thing, it is the central role of digital technologies in today’s economy. We would thus welcome a strategic focus from government on the technology sector. A positive, if small step in that direction, is the decision for SARS to review tax provisions for travel and working from home. We see this as an opening point for a wider discussion of digital enablement of South African workers and businesses, and new business and social models for the future.

Looking ahead, catalysing growth of businesses, especially smaller companies, is not just about top-down interventions. Small businesses are tough, flexible and hardworking. They can get things done. If their potential is realised, they can take South Africa’s growth to a whole new level. We need to create a culture and a framework that encourages people to establish their own businesses.


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