State to expand support for small businesses across the board
Companies do not need to be majority black-owned to qualify for support, says minister of small business development Khumbudzo Ntshavheni
As the country prepares to shut down for three weeks, the government is implementing a range of measures from tax deferrals to targeted funding for distressed businesses, in the hope that SA firms can weather the onslaught of the coronavirus.
The details outlined by ministers on Tuesday follow President Cyril Ramaphosa’s announcement of a nationwide lockdown to slow the spread of the disease and prevent overwhelming the country’s health system.
The support measures come at a time when SA’s growth was already dismal and its fiscal position acutely fragile, with little space to spend its way out of the recession that economists now believe is all but certain.
The cost of the necessary support efforts is yet to be tallied but the economic slowdown and the hit to tax revenues that would ensue is expected to have profound consequences for SA’s budget, economists said.
Dismissing speculation that support for small business would be based on black ownership levels, the minister of small business development Khumbudzo Ntshavheni said on Tuesday that assistance would be extended across the board, irrespective of whether companies are majority black-owned or not.
The department would roll out a new business growth and resilience facility aimed at helping small businesses, particularly those in the medical and hygiene, and food production industries, to build their capacity and strengthen local supply for critical goods during the crisis, she said. The facility would fund working capital requirements of businesses based on their costs and cash flow needs, at a rate of prime minus 5%.
The department also launched the SME relief finance scheme, which will make working capital funding available to small firms that are 100% SA-owned and employ 70% locals. The funding will be available for six months, at prime less 5% from April 1. "The intention is to retain jobs and to allow minimum business continuity so that the ramifications on the economy are not that severe," she said.
These measures will come alongside R3bn in industrial support for companies through the Industrial Development Corporation (IDC). This was to address the needs of vulnerable firms and to fast track funding for companies critical to fighting the virus, said minister of trade, industry & competition Ebrahim Patel. The IDC has relaxed requirements to include essential services that fall outside industries it ordinarily targets for funding.
For the about 75,000 businesses with a turnover of less than R50m a year, the SA Revenue Service will grant a delay on 20% of their pay-as-you-earn (PAYE) liabilities over the next four months. Firms will also be allowed to delay a portion of their provisional corporate income tax payments without penalties or interest over the next six months.
The initial steps were welcome, but it was difficult to assess the likely effect of the relief measures as there was little data readily available on the size of PAYE liabilities, said Kyle Mandy, tax policy leader at PwC
How they would be implemented was also unclear as they were likely to require the passing of legislation, he said.
The tax measures formed part of the first phase of economic support measures, said Mandy, and business was likely to come to government with more tax proposals as discussion continue.
The package of interventions was likely to make "some difference" if it was followed through as announced, said Sanlam Investments chief economist Arthur Kamp. But given the effects experienced globally, SA was facing a hit to economic activity that would be worse than the global financial crisis.
A bigger concern was the decline in revenue as a result of the economic downturn, which was going to filter through to the budget, Kamp said. SA could find itself with a budget deficit of about 10% this year, and a debt-to-GDP ratio of 80% by 2022/2023 under the current fiscal stance.
Fiscal policy alone could not address the increasing pressure that SA faced under the Covid- 19 lockdown, but the Treasury would continue working on proposals on how to deal with funding pressures created by the crisis, Treasury director-general Dondo Mogajane said.
The Treasury is working to limit the fiscal deficit through reprioritisation, spending adjustments and postponement of certain initiatives, in its bid to manage the effect a nationwide shutdown will have on the economy and the state’s budget.
"For now the National Treasury is working within its means and depending on the effect of the virus different options will be considered," Mogajane said.