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Thread: Davis Tax Committee on tax in the SME sector

  1. #11
    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Justloadit View Post
    A better way of looking at a company size is maybe extracting the amount o f VAT the company pays, this will give a pretty good indication of the company's health, irrespective of turnover figures.
    There was a proposal along those lines when we were thrashing the BBBEE thresholds for EME's and QSE's. The problem is, as you point out, it's fiddly and there's the potential for some manipulation; probably more unreliable than turnover as an indicator if you combine turnover with the business sector to get an idea of size.

    Factor in the goal to create employment, then you want to reward sectors which need high employment levels to hit the threshold more than those that can do it with low employment levels - which ultimately means going the turnover route to set thresholds for preferential tax treatment makes more sense.

    I do sympathise with your frustration over it, but the upside for you is you have far less employee issues to deal with, which in SA with the way the labour environment is at the moment, is a fairly considerable "benefit" not to be sneezed at

    Quote Originally Posted by CLIVE-TRIANGLE View Post
    What I really have a gripe with, besides red tape (but in truth that effects non sbc's as much) is that any prudent businessman, if he owns the property from which he operates, will house the property in a property owning company, at the least. That of course immediately disqualifies his operating company from being an sbc. So this simple act potentially costs him R94k per year. It may not be the intention of the act, but it certainly is the consequence.
    Great to see someone else sees this as an issue. This was going to be my next "point of interest", although looking at the issue from a different angle.

    My angle on this is:
    The SBC turnover threshold is R35 million per annum, if I remember correctly. (I'm sure I can rely on someone correcting me if I'm out of date on that).
    And realistically most small businesses do significantly less than that - certainly in any of the service industries, which is the sector most likely to give you the best employment creation bang for your buck. In fact the vast majority* are micro-enterprises (turnover of less than R5 million per annum).
    The service industries are also a fertile breeding ground for new start-ups. True, many fail, but we're playing a numbers game here and trying to push the odds in the direction we want, right?

    Now when someone is successful in one small or micro venture, the odds of them successfully launching another micro or small biz is fairly good. Arguably better than the ambitious techie with no business experience, and often better than the successful micro entrepreneur trying to push on to significantly higher levels beyond their current business acumen / expertise in their existing business (the business acumen needed at each level is significantly different, and quite often proves to be a fatal step up if charged at too quickly).

    And based on my experience, that next venture if in a new industry will typically be a partnership - combining tech expertise in one partner with proven business acumen in the other...

    I don't know if that makes the point well enough. Perhaps I need to give more thought on how to present a cohesive, structured argument that brings a number of factors together. I might come back to this on another day(but I'll leave what I've put down so far in case I don't).

    The upshot of it all though is - Why inhibit this potential SMME breeding ground with such a stiff penalty? There must be a way of rule making that can leverage that micro or small business acumen in a win/win way. As long as the total turnover of the companies with common shareholding doesn't exceed the threshold - something like that.

    I'm open to suggestions - I just recognise we're missing an opportunity here.

    *Perhaps not by share of the market based on turnover, but certainly by number of enterprises.

  2. #12
    Diamond Member wynn's Avatar
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    Because SMME's are not 'little big businesses' they naturally don't have the admin capabilities of 'big businesses' (although some 'medium enterprises do) so to relieve them of all the unnecessary bulls#!t admin (which most of them ignore anyway) base the tax on an excess of a particular turnover R5million for a 'micro enterprise' as I said before, R35million for a 'medium enterprise' as Dave said before (although I don't believe a 'medium enterprise' is a small business it should have it's own set of rules) and calculate a figure that actually puts some money into the pocket of those employing others permanently (this will also prevent small businesses from unnecessarily using labor brokers when they have work to do)

    So if I have a small but registered decorating business with two permanent employees that turns over R2million a year I have no tax to pay no returns to submit and in fact receive say R600 per permanent employee per month so that the Gubbermunt don't have to support him for more than the figure given to me and I am incentivized to keep them on permanently instead of using a labor broker or casual labor when I have a job to do that requires labour.

    I will of course pay VAT on everything I purchase so they at least will make that.
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    The upshot of it all though is - Why inhibit this potential SMME breeding ground with such a stiff penalty? There must be a way of rule making that can leverage that micro or small business acumen in a win/win way. As long as the total turnover of the companies with common shareholding doesn't exceed the threshold - something like that.
    It's R14m total income Dave, to qualify as an SBC.

    I do understand the reason for the natural shareholder / not holding other shares requirement, because otherwise the temptation to split my R60m enterprise into 5 SBC enterprises would win every day. But the problem is that until recently even dormant companies and shelf companies that are held as stock, fell foul of this rule. My feeling is that it needs an additional criteria to eliminate the unintended consequences.

    Your alternative idea is very interesting ( As long as the total turnover of the companies with common shareholding doesn't exceed the threshold - something like that.) I must think on that for a while.

    I did notice that the SBC declaration on the ITR14 does not mention the issue of connected persons, whereas I thought the Act does, I will revisit that because it opens an obvious door.

    As it is, my strategy for some years has been to split the entities when R14m gets too close, and make one the 100% holding company ( obviously the profitable one!), so that at least it qualifies.

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    Site Caretaker Dave A's Avatar
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    Probably have to nominate one company in the group to get the income tax windfall to ensure treasury doesn't lose on the deal, but at least the other(s) could still benefit from the accelerated depreciation allowance.

    The other factor that might make this an opportune time to approach the issue is SARS has conceded that their complexity argument against group taxation legislation probably isn't justifiable anymore given the way our tax regime has become so complicated already over recent years.

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    Hi my input is as follows:

    What should the definition of "small business” actually be?

    I think that small business should be looked at from a revenue and asset angle with reference to expenditure as well, the company structure should stay simple.
    With the above said profits should be sustainable or let me rather say taxable profits, possibly thresholds set on revenue and expenditure combined.

    What tax table should be used to tax these small businesses?

    I think that the SBC tax rates should be dropped to say that the first R350K is exempt and thereafter apply say 10%.


    What incentives and allowances should be introduced to assist small businesses?

    I think that this should be aligned with the main problems/challenges that small business owners have namely the following:

    1) Cash-Flow constraints
    2) VAT payments
    3) Payment terms
    4) Business Financing/Funding
    5) Basic accounting and finance skills sets

    Based on the above I would suggest the payment basis for VAT to help with cashflow and possibly extended vat period for VAT payments.

    Add more capital asset allowances for business broaden the scope here - For example an allowance on training where a large part of training costs can be subsidized in order to equip everyone in the business with all skills necessary to make it sustainable for everyone in the long run.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Jddt View Post
    I think that this should be aligned with the main problems/challenges that small business owners have namely the following:

    1) Cash-Flow constraints
    2) VAT payments
    3) Payment terms
    4) Business Financing/Funding
    5) Basic accounting and finance skills sets
    Great list, but could we add "red tape" to that?

    Small business owners do have less capacity for administrative compliance than big companies, and are also more likely to roll over and give up when they hit an administrative hurdle, particularly ones that don't work out as smoothly as they should.

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    Another aspect that I think we could possibly add here is the following:

    What are major concerns/needs small business owners are facing in terms of admin, accounting skills and the actual redtape involved with SARS etc.

    Based on this info we could come up with some great ideas for allowances and incentives that would be applicable to small businesses now in the present??

    Comments and suggestions ??

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    Site Caretaker Dave A's Avatar
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    Another issue to add - when SARS makes technological changes, make sure everything is in place and actually works properly before launching it onto us. The dropping of the debit pull method of payment and the faulty implementation of the credit push system (as I've experienced with the Standard Bank My Bills fiasco) is a case in point.

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    I will disagree to the point that SARS do not give relief to small business owners.

    I do not know if you heard of small business corporations? (SBC)
    Where there is an income tax scale and not a fixed % income tax as per normal companies


    SBC will pay 0% normal tax on the first R54 200 of taxable income, 10% of the amount
    by which taxable income exceeds R54 200 but does not exceed R300 000 and
    R24 580 plus 28% of the amount by which taxable income exceeds R300 000.

    There are certain criteria to be met :

    1 - All the holders of share in the company or members of the close corporation or co-operative must at all times during a tax year be
    natural persons.

    2 - No holders of shares or members should hold any shares or have any interest in the equity of any other company, other than companies as specified in the definition of “Small Business Corporation” in section 12E(4) of the Income Tax Act.

    3 - The gross income of the entity for the year of assessment may not exceed R20 million.

    4 -Not more than 20% of the total of all receipts and accruals (other than those of a capital nature) and all the capital gains of the entity may consist collectively of “investment income” as defined in section 12E(4) and income from rendering a “personal service” as
    defined in section 12E(4);

    5- The entity may not be a“personal service provider” as defined in the Fourth Schedule to the Income Tax Act.

    Elene

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