The 2013 budget delivered by the Finance Ministry was disappointing for us as entrepreneurs and small business owners.
Every day that goes by without creating vibrant and exciting tax policy to boost entrepreneurship is a day lost and a great number of jobs not being created.
Many small business investment and growth policy opportunities have been missed in the last 4 years since the global recession took hold and bold moves to boost investment in start-up’s and growing businesses remain amiss. Bold, yes, since 68% of private sector jobs are created by businesses employing fewer than 50 people. We need bold moves!
Having worked and continuing to work with business owners in SA, I created a shadow budget, one specifically focusing on the business development process as undertaken by entrepreneurs. This has been done to promote, influence and motivate what we, SA entrepreneurs need to continue investing and building SA and is targeted at businesses with annual revenues up to R100m.
Small businesses do not possess the resources, certain opportunities, momentum and balance sheets of big businesses with the result that risk profiles of small businesses differ dramatically. With this risk, incentives and rewards need to match entrepreneurial investment for the establishment of new business. Risk is a pricing measure and the reward for the risk should be enhanced through the company tax rate.
We call for no tax for the first 2 years of new business establishment followed on by a progressive tax system. The three tiers of the progressive tax system should be matched to other voluntary legislation such as the BEE codes to simplify the plethora of red tape facing entrepreneurs in SA.
This will allow the entrepreneur to approach new ventures with a reduced risk profile and allow the small profits generated in the early stages of growth to be redirected back into business growth.
It takes at least 5 years for an entrepreneur to find market from start-up and in so doing to learn what the business model his/her business should be building. All this while, the entrepreneur is occupying at least 5 key positioning of CEO, FD, HR, Marketing and Operations.
The busyness that results over this period prevents the entrepreneur focusing on strategic objectives to build the business. Should profits emerge during the early stage period and taxes be paid, the lost opportunity of rather investing in the right strategic actions to build the business is material in the businesses life.
We call for the establishment of an Entrepreneurs Government Bond that will see taxes that should be paid within the first 5 years of a business life being invested into such government bond. The option would be in place for the entrepreneur to draw the taxes out for investment into the business within the 5 year period. Should the option not be taken up, the tax investment will be liquidated into treasuries coffers.
This will allow the entrepreneur to invest cash generated sensibly into building their businesses further. Over a 5 year period, some of the 5 posts filled by the entrepreneur can be taken up by staff creating the time for such investments to made with more deliberate consideration.
Cash flow is the lifeblood of small business. Invoicing big business or government for work done is key to getting paid. In many instances, payment is stretched well beyond reasonable payment periods and in some cases for months. The Vat impact generated by the invoice in one month and the delayed payment of the invoice months later generates cash flow crises for small businesses.
We call for the replacement of the accrual Vat system by a cash receipts Vat system to match the generation and payment of Vat with payment of the invoice by the customer.
This will allow an entrepreneur to self-fund their own growth and not be distracted by the often futile pursuit of seeking outside funding to support growth.
Small businesses are unable to compete with big businesses in terms of employment packages. As a result most school leavers find their first employment in small businesses where they secure experience and skills.
This deep investment made by an entrepreneur is seldom rewarded since the employee moves onto softer, easier options offered by big businesses and government.
The loss of this employee has a profound impact on small business owners who seldom recoup their investment thus discouraging further employment.
We call for a first-time employment subsidy made up of R15 000 cumulative tax credit for any business owner employing a first time employee remaining in their employ for 12 months or more.
This will allow the entrepreneur to offset taxes that remove cashflow from the business against the cost of training.
Banks do not lend to small businesses. Yet funding is a vital resource to mobilise and support the development of a business through its lifecycle from start-up to growth. This inability in SA to seek and secure funding sees many a good business develop at a snail’s pace or eventually fail, something that SA cannot afford.
We call for a further revision of S12J to motivate and mobilise the creation of private sector funding through the establishment of Angel funders; private funders who are motivated through tax policy to invest their funds during the formative stages of the business development process.
This will allow the entrepreneur to access a broader and more empathetic funding source.
The limited resources of an entrepreneur need to be focused on the business development process.
The plethora of red tape costs a small business significantly more than a big business and this cost increases the risk of failure dramatically since it is compounded by the businesses owner not investing the red tape time demand on business growth but compliance adherence.
We call for a reduction in the red tape through the establishment of a single point of web-based access with form-fill capability to enable a single entry of information for all compliance documents related to doing business within specified sectors as well tax and labour compliance. This should be supported by electronic submissions and tracking reports.
Don’t set tax policy for small business without consulting. The plethora of associations that claim to represent small business including Business Unity South Africa, Business Leadership South Africa and the National African Federated Chamber of Commerce and Industry are not spokes people for SMEs; they guard the interests of big business alone.
I was recently invited to make a contribution to the Davis Commission established by The Department of Treasury to review tax policy. These ideas have been shared and passionately presented.
Whilst challenges present themselves in all policy directives, bold moves are needed in an economy that underperforms the required growth rates a prosperous South Africa demands. Minister Gordhan, no challenge is insurmountable in the face of bold leadership.
We look forward to hearing the South African 2014 Tax budget – let it indicate the value of our contribution as the entrepreneurs and small business owners to building the future of the South African economy for the prosperity of all.