Connect with us

Entrepreneur Today

Boosting SME Activity In SA By Tackling Barriers

Tackling entry barriers will grow SA economy and boost SME activity.

Entrepreneur

Published

on

Small-business-barriers

Small businesses are often treated or viewed as a sideshow – or, worse, as a charity – in South Africa. A closer look at how things work exposes flaws in this viewpoint.

In reality, innovation and job creation are driven by SMEs. The government is now trying to push for the creation of 800,000 jobs per year between now and 2030 – 11 million in total – to stimulate and develop the economy. Awake to the impact of SMEs when they are given a chance and supply chain barriers are removed, the National Development Plan (NDP) envisages this sector as accounting for 90% of these new jobs.

It is time for a mindset shift in South Africa, especially in corporations that might be reluctant to procure goods and services from start-ups and other small entities.

Related: Stimulating The SME Sector: What Can Government Do Differently?

Many large organisations procure from old peers without opening the door for small businesses unless we speak of nonstrategic services such as cleaning and catering. Amid pockets of excellence in the entrepreneurial world, not all SMEs are faultless. Some fail to collaborate, as consortia, even when critical mass means either landing or losing new contracts. Also, not all of them are professional.

This category can do with coaching. Excluding SMEs from supply chains due to misperceptions rather than skilling them or reducing entry barriers limits economic growth. How will SMEs be able to prove themselves and present track records unless given the chance to gain experience?

Blue chips like ArcelorMittal, Growthpoint Properties and Woolworths have been commended for building their own timbre by going the extra mile to shore up SMEs. Awake to the dearth of skills and resources in the nascent green economy, J.P. Morgan has stepped in to fund the Small Business Boost Programme at the Gordon Institute of Business Science (GIBS) Enterprise Development Academy.

This new project will offer extensive training, support and mentorship to two cohorts of 50 entrepreneurs. The list of companies that deserve praise for uplifting start-ups or procuring from small businesses is not short – but huge room for improvement remains.

Developed nations view the SME sector as a launch pad, which explains the healthy ties between corporations and small businesses, with governments playing supportive roles while universities churn out the relevant skills. A company like Microsoft comes to mind: it was built by students and grew because of the entrepreneurial and innovative minds behind it.

A huge 58% of gross value added in the 27 European Union countries came from SMEs in 2011. In OECD countries SMEs accounted for an estimated 99% of enterprises and two-thirds of employment in 2010.

These numbers highlight the fact that corporations don’t create jobs to the extent that might be believed. “Innovative SMEs fuel employment and economic growth,” added the OECD report. “Nearly all net job creation in the US between 1997 and 2005 came from firms less than five years’ old.”

Related: Making Government Business More Attractive To SMEs

South-african-small-business-development

Back home small businesses support the success of their larger peers. “The diversification of supply chains assists big businesses to have a wider choice of suppliers from SMMEs and promotes innovation within the value chain. The growth and sustainability of big business therefore depends on a strong small business sector, both as consumers and suppliers,” Small Business Development Minister Lindiwe Zulu once observed.

The benefits of cracking open supply chain management to include the SME sector are apparent. For South Africa to grow, research and development (R&D) should be made a top priority, because it catapults economies.

The South African government (which funds projects), academia and the private sector invest a smidgeon below 1% of its GDP on R&D, while the Netherlands – whose economy is much bigger than ours – spends twice as much in percentage terms. The average in OECD states is 2.5%.

If we are serious about being innovative and unlocking opportunities while also improving our competitiveness, we should bolster our R&D budget. We have just averted a credit downgrade – yet our economy, against the backdrop of runaway unemployment, has all the right ingredients for pronounced growth.

Coupled with that, new industries have to be nurtured to complement the entrenched ones such as mining and manufacturing. The question is: Where will the magic come from? To quote the NDP, the green economy is poised as one of the areas that will support growth.

Related: How SMEs Can Defeat The Red-Tape Bugbear

Aggressive investment in transport will bring magic in three ways: it will create jobs, lower input costs and cut travel times – both social and economic benefits. The tourism and telecomms industries can grow further. The medical industry, with traditional herbs remaining untapped in commercial terms, also stands out for its potential to help stimulate the economy.

Captains of industry and lenders are well-placed to invest in R&D, to improve our competitiveness, and to help entrepreneurs chase these dreams. It is through a strong SME sector that South Africa can achieve some or all of the NDP imperatives and reach its true potential.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Advertisement
Click to comment

You must be logged in to post a comment Login

Leave a Reply

Entrepreneur Today

3 Stealthy Tax Hikes Payroll Managers And Employees Need To Take Note Of

By Rob Cooper, tax expert at Sage, and chairman of the Payroll Authors Group of South Africa

Entrepreneur

Published

on

tax-increase

“Dammed if you do and dammed if you don’t.” 

The adage summarises the difficult decisions government and the Finance Minister faced when balancing the country’s books, rescuing state-owned enterprises, and reviving the growth of our economy. Given the economic pressure that most taxpayers are facing, government ideally needed to achieve all of that without direct increases to personal income tax in the most recent Budget Speech.

Personal income tax has comprised at least a third of South Africa’s total tax revenue in recent tax years, despite growing unemployment. The 2019 Budget, presented in February, forecasts that personal income tax will account for nearly 39% of tax collected during the upcoming (2019/20) tax year. Given that we are in an election year and that the tax base is fragile, it’s not surprising that the Finance Minister and the National Treasury avoided direct increases to the statutory tax tables used to calculate PAYE for employees in the budget.

Nonetheless, government has made inflation work in its favour to impose some tax increases by stealth. Here are three ways government is raising more revenue without direct tax increases:

1. Bracket creep

The statutory tax tables used by payrolls and employers have not been changed for 2019/20, nor have the brackets been adjusted for inflation. This effectively amounts to an indirect tax increase that will yield a revenue saving of approximately R12.8 billion for government’s coffers.

It is not unusual for government to use ‘bracket creep’ to effectively raise more revenue. But unlike previous tax years, even low- and middle-income earners are not getting much relief. Rebates and the tax threshold are being increased by small amounts to allow some relief, but many people this year will feel the pain as inflationary salary increases push them into a higher tax bracket.

2. Medical aid credit not adjusted for inflation 

As proposed in the 2018 Budget, the Finance Minister did not apply an inflationary increase to the Medical Tax Credit, which allowed him to raise an extra R1 billion in revenue for the year. Surprisingly, these funds will be allocated to general tax revenue rather than ring-fenced for healthcare. In previous tax years, revenue generated from below-inflation increases on medical scheme credits was used to fund National Health Insurance (NHI) pilot projects.

There is still no clarity on how the NHI is going to be funded except for a general statement that the funding model is a problem for the National Treasury to solve, and that the principles of cross-subsidisation will apply. One wonders if any real progress will be made soon, given the fiscal constraints government faces.

3. Business travel deduction left untouched

The Budget leaves the per-kilometre cost rates used to determine tax deductions for business travel untouched. By not increasing travel rates to account for inflation, government effectively increases income tax collection at the cost of the taxpayer. This will be a blow for people who need to claim from their employers for business travel in their personal vehicles. This change has slipped through largely unnoticed and the budget does not provide numbers for the expected increase in tax revenue.

Closing words

Amid political turmoil and uncertainty, the Finance Minister presented a balanced budget for 2019/20 that offers hope for the future along with some tough love. With government taking steps to accelerate economic growth and improve revenue collection, we should hopefully see a steady improvement in government finances, which will translate into less pressure on the taxpayer in future years.

Continue Reading

Entrepreneur Today

SMEs: Staying On The Right Side Of The Taxman

Remaining SARS compliant can be a constant challenge for small- to medium-enterprises (SMEs), especially when they are trying to focus on growing their businesses and streamlining their operations.

Entrepreneur

Published

on

tax

EasyBiz Managing Director, Gary Epstein, says submitting taxes can be a seamless process that does not have to take up more time than is necessary. “If business owners understand what is required of them and they put a few processes into place to deal with their tax submissions properly, their lives will be so much easier.”

What are the top three considerations for SMEs when submitting tax returns?

“Firstly,” says Epstein, “SARS returns must be accurate and submitted in terms of the relevant Act. Secondly, returns should be submitted and paid on time to avoid unnecessary penalties and interest, and thirdly, business owners must follow up on queries issued by SARS. “Do not ignore these queries, act on them as soon as possible”.

What are the major SARS submission deadlines for SMEs?

Epstein points out that small business owners need to adhere to various tax deadlines, each with their own particular dates for submission. “It is important that business owners diarise the dates (and set advance reminders for themselves) and/or enlist the services of an accountant or financial adviser to help them keep abreast of requirements.”

Value-added tax (VAT)

VAT payments need to be submitted in the VAT period allocated to the business, according to various categories and ending on the last day of a calendar month. This may mean making payments once a month, once every two months, once every six months or annually, depending on the category.

Provisional taxes

Provisional tax should be submitted at the end of August (first provisional) and at the end of February (second provisional) – for February year-end companies.

Employee taxes

In addition to submitting an annual reconciliation (EMP501) for the period 1 March to end of February for Pay-As-You-Earn (PAYE), Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF), employee tax, in the form of an EMP201 return, needs to be submitted by the seventh of every month.

When can SMEs get extensions and is it worth it?

Epstein says SMEs can apply for various extensions, but these are subject to the Income Tax Act and Tax Administration Act.

“It is best for SMEs to consult their tax professionals to get advice regarding extensions for their businesses.”

What is SARS not flexible about?

SARS is not flexible when it comes to late returns and late payments.

“I cannot stress enough how important it is for SME owners to ensure their tax returns are submitted on time. In this way, they will avoid the inconvenience and expense of additional fines and interest,” notes Epstein.

What skills do SMEs need in their organisations to be able to submit to SARS efficiently?

Business owners often don’t have the time or expertise to deal with tax submissions throughout the year. If the business cannot afford to employ a full-time accountant or financial services expert, it would do well to outsource its tax requirements to a registered tax practitioner.

“I would recommend that even if they are not submitting the tax returns themselves, business owners should have a broad understanding of the tax regulations and what is expected of them. There is a lot of helpful information on the various Acts and tax requirements on SARS’ website,” says Epstein.

How does the right software help SMEs remain SARS compliant?

SME’s (and their accountants’) jobs can be made easier by using reliable accounting software to calculate accurate VAT reports. These reports are only as accurate as the data entered into them, which means care needs to be taken when inputting data into the accounting programme. Epstein says a good accounting software package must be reliable, easy to use and functional.

“SMEs need to check that the software has thorough reporting capabilities and can interface with other software solutions. Of course, it is also important to find out whether the software is locally supported by the vendor or not.”

Continue Reading

Entrepreneur Today

4 Dangers Of Business Under-insurance

A common short-term insurance peril that many SMEs face when submitting a claim following an insured event is the risk of being underinsured.

Entrepreneur

Published

on

business-insurance

Malesela Maupa, Head of Products and Insurer Relationships at FNB Insurance Brokers says, many small business owners mistakenly believe that by merely having a short-term insurance policy in place they are adequately protected against unforeseen events.

“This is technically correct provided that the business is covered for the full replacement value of the items insured. However, in circumstances where the sum insured does not cover the full replacement value or material loss of the item insured, the business is underinsured,” explains Maupa, as he unpacks the dangers of business underinsurance:

1. Financial loss

The most common risk is financial loss on the part of the business. If the business is underinsured or the indemnity period understated, the short-term insurance policy will only pay out the sum insured for the stated indemnity period as stated in the schedule, with the business owner having to provide for the shortfall. This often leads to cash flow challenges, impacting profit margins or rendering it difficult for the business to recover following the financial loss.

2. Reputational damage

Should an underinsured business not have sufficient funds to replace a key business activity or critical component following a loss, this may impact its ability to fulfil its contractual obligations, leading to a loss of business or market share, and irreparable reputational damage in the worst-case scenario.

3. Legal action

A small business also faces the risk of customers or clients taking legal action against it, should it fail to deliver on goods and services following a loss or be unable to honour its financial commitments that they committed to prior to the loss.

4. Survival of the business

A catastrophic event such as fire, which could result in the loss of stock or company equipment and documentation, could threaten the survival of a small business that is not yet fully established, if the business assets are not adequately insured.

Working with an experienced short-term insurance broker or insurer is essential when taking up short-term insurance to ensure that business contents are covered for their full replacement value.

Furthermore, depending on the nature of the business or item insured, the policy should be reviewed on a regular basis to avoid underinsurance as the value of items often change overtime due to fluctuations in economic activity. Where it’s necessary, evaluation certificates need to be kept up to date.

“Lastly, SMEs should ensure that the sum insured does not exceed the replacement value, which would lead to over insurance. Should a business submit a claim following a loss, the insurer would only pay out the replacement value, regardless of the higher sum insured,” concludes Maupa.

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending