We’re racing towards the end of the current tax year and the start of the next, with the President’s State of the Nation Address (SONA – 13 February) and the Finance Minister’s Budget Speech for 2020/1 (26 February) on the horizon.
By Pieter Bensch, executive vice-president: Africa & Middle East at Sage
Small and medium businesses will be listening to hear more about government’s spending priorities for the year ahead as well as its plans to revive the economy.
Let’s consider some of the concerns on small and medium business owners’ minds and some ways government could address their challenges:
The tax burden
Finance Minister Tito Mboweni painted an unflattering picture of South Africa’s economy and the state of public finances in his Medium-Term Budget Speech in October 2019. He highlighted a projected tax shortfall of more than R50-billion as a particular concern; what’s more, the budget deficit is projected to widen from 3,1% to 4,3% of GDP in the current fiscal year. South Africa’s national debt now exceeds R3-trillion.
With state-owned entities such as the SABC, SAA and Eskom burdened by excessive debt, and the State facing continued demand to invest in social services and infrastructure, government will need to find new revenue sources to tap into. Some economists believe that we could see another VAT increase or personal income tax increases, and perhaps even both – in addition to the traditional hikes in sin taxes and fuel levies.
What businesses would like to hear:
With consumers – especially low to mid-income earners – already under significant financial pressure, tax hikes could eat into disposable income and stifle economic growth. It could harm small businesses because their customers will have less money to spend. Plus, many small businesses ended up absorbing the last one percentage point increase in VAT, hurting their profitability. Government should rather look for ways to increase revenues by promoting economic growth.
The long wait for payment
Many government departments, state-owned enterprises and municipalities still have a reputation for slow payment, forcing their small suppliers to wait 60 days, 90 days or more for their money, This, in turn, hurts the profitability of small businesses and makes it hard for them to pay their suppliers on time.
According to the Department of Small Business Development, the total value of invoices older than 30 days and not paid by national departments at the end of the last financial year was R634-million. The total value of invoices older than 30 days unpaid by provincial departments was R6.5 billion.
What businesses would like to hear: Budget Speeches and State of the Nation addresses have highlighted this concern in the past. In November 2019, during the SA Investment Conference in Soweto, President Cyril Ramaphosa once again made a call for government to ensure that suppliers are paid within 30 days. Small businesses would like to hear about tangible steps such as new regulations and legislation to speed up the government payment and procurement process.
The Eskom crisis
Smaller businesses that cannot afford to buy generators or install solar power are bearing the brunt of the economic cost of load shedding – bakers, panel beaters, small manufacturers, restaurants and other enterprises that need power to get work done. Each day they experience load shedding further dampens the prospects for economic growth in South Africa.
What businesses would like to hear: Following the ANC NEC’s lekgotla in January, the ruling party has approved a range of measures to improve energy security – including letting municipalities procure their own energy, expanding the Renewable Energy Independent Power Producer programme and freeing up regulations around self-generation by business. The Budget and SONA must translate these policies into urgent action plans with achievable targets and deadlines.
The digital divide
Driving wider adoption of digital technologies among smaller businesses could help drive increased efficiency and growth. Digital technology could also integrate informal smaller enterprises into the formal economy, helping them move to the next level of development. Government should look at the causes of low adoption, which range from the high costs of data to low levels of digital literacy.
What businesses would like to hear: The Budget Speech and SONA should focus on closing the digital divide and encouraging small businesses to embrace technology. It could include educational efforts by institutions such as SARS, which could benefit from encouraging small businesses to adopt digital accounting and payroll solutions versus sticking with old and mundane ways. After several delays, it is also imperative to accelerate release of more high-demand spectrum to network operators to facilitate the roll-out of mobile broadband.
Make small business a priority
There is no sugar-coating it: South Africa’s economy faces a tough year with both the World Bank and International Monetary Fund (IMF) forecasting GDP growth below 1% for 2020. Many large businesses have announced that they will be retrenching thousands of workers in the months to come. Under the right conditions, small businesses could help close these gap.
To drive inclusive economic growth, we need to develop and grow our vibrant, resilient small business sector. Better access to financing and less government red tape could help small businesses to thrive, in turn spurring wealth and job creation.