The Davis tax committee’s discussion document on the taxation of small and medium enterprises (SMEs) could open up a useful debate on SA’s small business sector and how to boost it.
This is because what the committee says, in a subtle sort of way, is that tax is not really the problem. True, the burden of compliance is a major concern for small businesses, which according to one study cited by the committee spend 255 hours a year on average to deal with all tax-compliance matters.
One wonders how many additional hours it takes them to comply with all the other pieces of red tape they have to deal with. This is clearly beyond the committee’s sphere, as are other barriers to doing business for small players. What it does say is that: “The overall conclusion from desktop research and interactions with small businesses through their trade associations is that most problems faced by small businesses do not stem from tax.”
The committee’s document also points to the dearth of hard information on the contribution of SMEs to the economy. There is very little research and no reliable national statistics on the sector.
The committee notes this as a limitation on its inquiry.
It decided to work on the assumption that SMEs contribute significantly to job creation.
Much more research and debate on the sector is needed to guide policy — instead of just assuming the conventional wisdom that small businesses are the answer, government and business should be doing some serious work on the subject. Without that, there’s the risk of fixing what’s not broken — and failing to fix what is.
If the committee’s document prompts a broader and more rigorous review of SMEs and the policy framework, that would be useful in itself. Meanwhile, the committee has reviewed the existing tax regime thoroughly and has made innovative proposals on how it might be streamlined — without opening the system to too much abuse and evasion by SMEs.
The South African Revenue Service and the Treasury have already done much to improve small business taxation, and the Davis committee takes that further. It is important that SMEs themselves and those wanting to see them thrive, engage with the committee and offer constructive input.
This article first appeared on bdlive.co.za.