South Africa’s tax system might be revamped to make it easier for small- and medium-sized enterprises (SMMEs) to flourish, with a possibility of VAT exemption for small businesses.
This is if the team put together by President Cyril Ramaphosa tasked with cutting red tape in government to encourage new investments and expand existing ones has its way.
Ramaphosa in the state of the nation address in February received much praise after he appointed mining stalwart Sipho Nkosi to lead a team in his office to slash red tape, which businesses often decry as an impediment to trading in the country.
Ramaphosa tasked Nkosi with leading the charge to make tangible progress in reducing excessively complex rules, regulations, procedures and processes that inhibit economic growth.
Nkosi this week took legislators into confidence about the progress his team had made over the past nine months.
He said one of the proposals they were considering was the “reorganisation of the Income Tax Act to simplify tax for SMMEs and VAT exemption for SMMEs”. Currently, it is mandatory for any business to register for VAT if the income earned in any consecutive 12 months has exceeded or is likely to exceed R1-million.
In the short-term, Nkosi said the Red Tape Reduction (RTR) task team had zoomed in on three areas to make material progress in the shortest possible time. The three areas are travel tourism permits, mining and prospecting rights licence system and work permit and visa administration.
Nkosi said the issue of travel tourism permits was a long-standing issue for an important industry, impacting established and emerging operators alike. “There has been progress recently following engagement between the department of transport (DoT) and the industry, with the support of the minister of transport,” he said.
“The DoT has made progress in reducing the licence backlog, but the existing process remains cumbersome with additional requirements that are not contained in the regulations. The minister of transport remains engaged with this process.”
The RTR is also of the view that growth in the country’s mining industry has been hindered by a modern system to administer mining and prospecting licences, and the procurement process has been delayed due in part to differences between SITA and the department of mineral resources and energy (DMRE).
“A meeting will be held with the DMRE in the first instance to discuss how the RTR process may be of assistance,” Nkosi said.
Nkosi and his team also took issue with the “inability” of the government to quickly process work permits, which negatively impacts on international firms’ ability to operate in the country and in attracting critical skills.
“A report into this issue has been prepared by Operation Vulindlela, under the leadership of former department of home affairs director-general, Mavuso Msimang. The report has been shared with minister Motsoaledi and a detailed briefing has been scheduled to plan for a way forward.
“The implementation of the recommendations will be supported by the RTR programme, and this will be based on engagements with the DHA regarding the programme of work,” he said.
Nkosi also wants every province to have its own RTR team to allow for co-operation of the relevant administrative authorities, including at national, provincial and local government level.
“Letters are being prepared to the premiers of each province to engage and encourage the establishment of red-tape-reduction units in each province. This is a process towards the creation of dedicated capacity in each province that will form part of the overall architecture to tackle red tape more systematica.”
Other areas of interest the RTR is looking at is the introduction of an e-rates clearance system in all municipalities, deeds automation and informal trading.
How SA has fared so far
In 2020, South Africa scored 67 points in the Ease of Doing Business index of the World Bank Group, ranking it 84th out of 190 countries.
Some of the highlights of the index:
- Ease of getting a construction permit: SA’s ranking is 98th.
- Getting electricity: The country ranks a lowly 114th.
- Registering property – ranked 108th.
- Obtaining credit. SA is just in the top half at number 80.
- Protecting minority investors – here the country is high at 13th due to the heralded Companies Act.
- Starting a business: the country ranks a disappointing number 139.
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