Fiddling with tax won't boost small business - Davis committee

Cape Town – Entrepreneurship in South Africa cannot be driven by the tax system and the current tax regime is adequate to facilitate the growth of small business, Judge Dennis Davis, head of the Davis Tax Committee, said on Tuesday.

Davis and a delegation, who have assessed South Africa’s tax system over the past three years, briefed Parliament’s Standing Committee on Finance on the progress made since the committee began its work in 2013.

The work done on the effect of tax on small business corporations flowed from 37 submissions, 16 sets of comments and two reports to Small Business Development Minister Lindiwe Zulu.

“We (the Davis Tax Committee) do not think the tax system is by and large not adequate (for small businesses),” Davis said. “Fiddling around with tax won’t propel our small businesses to a central position in our economy.”

Davis said that during an earlier meeting with Zulu, the committee had suggested that the turnover tax system be retained for micro businesses of up to R1m per year, but with more simplification and more generous tax rates.

“The minister has accepted these recommendations,” Davies said.

The committee holds the view that the generous tax and depreciation rates for small businesses corporations with a turnover of up to R20m per annum, which cost the fiscus R1.36bn, are not reaching the majority of these businesses and should rather be replaced by a refundable compliance tax rebate to give all small businesses an equal benefit for the costs of complying with tax laws.

Davis added that the generous dispensation to small businesses does not necessarily go to those companies that are the ones that will generate employment in South Africa. “Let’s not waste that money and give everybody some form of rebate to ensure that compliance with tax regulation can be as free as possible.” 

In addition, small businesses currently carry a significant burden in having to comply with the skills development levy. “The compliance burden for them is too onerous, with the result that most pay the levy without being able to access the benefits that large businesses are able to access easily,” Davis said.