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Budget speech good for entrepreneurs and SMEs

PKF, the chartered accounting and business advisory firm that specialises in servicing growing and entrepreneurial companies, is positive about this year’s budget speech. Tax specialist DR ROBIN BEALE explains why.

Dr Robin BealeThe new simplified, turnover-based tax system for small businesses, announced by Trevor Manual in his budget speech today, is to be welcomed, even though some caution is in order.

The simpler tax matters are for the small business, the better. The new turnover-based tax proposed for these businesses will be a combination of VAT and income tax, with business owners paying tax on their total turnover without making any deductions for expenses. However, there is a danger that small, unsophisticated businesses could unwittingly miscalculate their taxes. Therefore a simpler turnover system is preferable.

Also to be welcomed are the incentives announced for venture capital investments, which will target high-growth and hi-tech companies, as well as junior mining companies. In the case of the junior mining companies, this should encourage exploration for new mineral deposits.

The reduction in the corporate tax rate will, of course, be widely welcomed. Dropping from 29 to 28 percent, this will help make South Africa more internationally competitive, though the country still has a way to go to match the international average of between 25 and 27 percent.

However, with this good news comes less cheerful news about the Secondary Tax on Companies (STC), which is being phased out by government. When this happens, company STC credits will expire. This will not be welcomed by companies with unutilised credit.

Overall, though, Trevor Manuel has come up with a positive set of proposals that will be good for business, especially smaller, entrepreneurial businesses, and this is good news for the South African economy.

About Dr Robin Beale

Dr Robin Beale, BA LLB (UCT); LLM in Taxation (UNISA); PhD in Tax Law (Wits), is a Tax Consultant with PKF where he specialises in Corporate Tax. He has practised as an attorney in both Zimbabwe and South Africa and specialises in Taxation. He was previously a Tax Partner with Deloitte.

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The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

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