Cost of tax compliance still too high for SMEs
SMMEs have difficulty filing tax returns due to the various taxation treatments and the complexity of the country’s tax laws.
This fact was sounded by Wits professor Jackie Arendse at the annual Tax Indaba of the South African Institute of Tax Professionals (SAITP) in Sandton yesterday.
Arendse told the conference that, according to SAITP stats, there are 5.6 million SMMEs in South Africa – those being less than 200 employees. The stats also revealed that only 17% of those SMMEs are registered businesses and furthermore only 50% of those were tax compliant.
Arendse said that South Africa has over 86 000 small business corporations with the bulk of them sitting with a turnover of R2.5 million, yet only 1000 of those are registered. The numbers for registered micro businesses stands at 8 500.
SMMEs on the verge of extinction
According to Arendse valued-added tax (VAT) is considered the biggest cost of compliance for SMMEs.
“It is because of this that SMMEs are facing extinction,” Arendse said. She maintained that SMMEs have a huge role to play in the development of South Africa’s economy.
To prevent this, Arendse suggested that SMMEs be put more on the radar.
Arendse’s comment follows President Jacob Zuma’s announcement of a new ministry to take care of small business development last month, headed by Lindiwe Zulu, with the president highlighting small business sector is critical to economic development and transformation.
Referring to this year’s budget speech, Arendse said that the thresholds for the existing small business tax incentives are still too low.
According to Arendse, the most substantial tax break – small business company tax – allows business owners to pay a lower corporate tax on their first R350 000 worth of profit a year, but only businesses with a turnover of less than R14 million a year qualify.
By pushing up the turnover amount, she said, as well as the profit threshold of the scheme, the tax break will provide a clear incentive for entrepreneurs to invest and expand rather than doing all they can to remain under the radar.