A STABLE electricity supply is key to growing South Africa’s vital small and medium businesses, which is why the announcement that local governments can source electricity from independent power producers is important.     African News Agency (ANA)
A STABLE electricity supply is key to growing South Africa’s vital small and medium businesses, which is why the announcement that local governments can source electricity from independent power producers is important. African News Agency (ANA)

Small business gets a charge out of the Budget

By Philippa Larkin Time of article published Feb 28, 2020

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Small business has welcomed the Budget, saying the marginal relief from tax increases and the changes to the electricity regulatory framework were positive.

Pieter Bensch, the executive vice-president for Africa and the Middle East at Sage, said Finance Minister Tito Mboweni’s Budget speech offered small and medium-sized enterprises (SMEs) reason to feel both relief, due to the lack of growth-dampening tax increases, and cautious optimism about the prospects for economic recovery over the next two years.

Guy Hosking, the chief financial officer at SME funder Retail Capital, said the marginal relief on income taxes, which would put more spend back into consumers’ pockets, should be positive SMEs, and provided a boost for growing the economy.

However, he said it was disappointing that the minister's speech did not mention further support for SMEs.

“This leaves this key function to be provided by the private sector. There are alternative lenders available in South Africa to provide funding to SMEs that can't raise finance through traditional sources,” Hosking said.

He said it was good news for the SME sector that municipalities would be able to source their own electricity from independent power producers (IPPs), which pointed the way to a general relaxation of the highly regulated energy sector.

“The impact of load shedding on small businesses is very significant, with nearly half of SMEs reporting unreliable services as impacting negatively on their growth. Any move to secure consistent power to SMEs is positive. It also points the way for SMEs to generate their own electricity over time, enabling them to cut costs, and even earn revenue by feeding electricity back into the grid,” he said.

Nadine Chetty, the co-founder of Ecomm Accounting Solutions, agreed that changes to the electricity regulations and the tax proposals in the Budget supported small business.

Chetty said small businesses were particularly affected by load shedding.

“They generally don't have the capital for generators, or the diesel to run these, or solar power. Stable electricity is key to growing South Africa’s vital small and medium businesses,” she said, which was why Mboweni’s announcement that local governments could source electricity from IPPs was so important.

“Tito Mboweni spelled out his vision of an economic strategy for South Africa that would benefit small businesses. This included strengthening the macroeconomic framework to give this sector certainty, transparency and lower borrowing costs,” she said.

Sharon Smulders, project director: tax advocacy at the South African Institute of Chartered Accountants, said the Budget did bring some light, albeit faintly, in the darkness for small businesses.

The sector was struggling with weak economic growth, load shedding, crime and burdensome regulations.

He said the struggle was evidenced by the reduction in tax expenditure in relation to the Small Business Corporation incentive from R2.8 billion in 2016/17 to R2.5bn in 2017/18, indicating that small businesses’ taxable profits were on the decline. The incentive provides small businesses with a reduced tax rate and accelerated asset allowances.

However, the Budget announced that, to ease the heavy regulatory burden and the cost of doing business, one could register a new business with the Companies and Intellectual Property Commission (CIPC), SA Revenue Service, the Unemployment Insurance Fund and the Compensation Fund in one day on the CIPC BIZportal.

Regulations were being relaxed to help the flourishing fintech sector, and the Competition Commission's rulings in December 2019 would result in lower data costs.

It was also announced that the Small Enterprise Finance Agency (Sefa) would continue providing support to smaller businesses through grants.

In this regard, the Black Business Supplier Development Programme, Co-operatives Incentive Schemes and the National Informal Business Upliftment Scheme were allocated R1.4bn over the medium term to support small businesses and co-operatives.

Smulders said Sefa would be collaborating with the government and the private sector to provide financing through a blended model involving loans and grants.

The Small Enterprise Development Agency was also allocated R2.8bn to provide support to small business, including increasing the incubation network in rural areas and townships.

Over the medium term, R107.1 million would be reprioritised to refurbish 27 industrial parks in townships.

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