R1m threshold affects small businesses, which employ many (often low-skilled) people
27 February 2022 - 21:07
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The problem of stealthy “bracket creep” doesn’t only affect pensions. There are many thresholds that regulate various levels of red tape (and associated costs) for business, and most of these have not changed for a significant period.
One that is a serious cap and barrier to growth for small businesses is the R1m threshold above which VAT registration is required. When this limit was set many years ago R1m turnover was well above that of the majority of small businesses, but now many “one-man-bands” reach this level of income.
The effect is particularly deleterious on businesses that provide personal and non-business services, and which employ many (often low-skilled) people. Being obliged to register for VAT in effect means a 15% reduction in income for these enterprises.
This is because salaries and wages cannot be claimed as input VAT, and increasing charges by 15% to mainly non-VAT registered private customers or clients would mean instant death to such small businesses.
There are many similar thresholds, set by various branches of government, that determine the level of nonproductive red tape and expenses that business owners are obliged to incur. The jungle of dysfunctional websites, incomprehensible forms, nonresponsive call centres and additional regulatory expenses that needs to be navigated as a result of these fixed thresholds, presents a serious drag on productivity and growth.
I sincerely hope the president’s new “red tape reduction adviser”, Sipho Nkosi, will examine, and act on, this issue with urgency.
Iona Zietsman Hout Bay
JOIN THE DISCUSSION: Send us an email with your comments to letters@businesslive.co.za. Letters of more than 300 words will be edited for length. Anonymous correspondence will not be published. Writers should include a daytime telephone number.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
LETTER: Red tape on VAT registration impedes SMEs
R1m threshold affects small businesses, which employ many (often low-skilled) people
Prof Phillip de Jager's letter refers (“Tax deduction for retirement savings needs urgent attention”, February 22").
The problem of stealthy “bracket creep” doesn’t only affect pensions. There are many thresholds that regulate various levels of red tape (and associated costs) for business, and most of these have not changed for a significant period.
One that is a serious cap and barrier to growth for small businesses is the R1m threshold above which VAT registration is required. When this limit was set many years ago R1m turnover was well above that of the majority of small businesses, but now many “one-man-bands” reach this level of income.
The effect is particularly deleterious on businesses that provide personal and non-business services, and which employ many (often low-skilled) people. Being obliged to register for VAT in effect means a 15% reduction in income for these enterprises.
This is because salaries and wages cannot be claimed as input VAT, and increasing charges by 15% to mainly non-VAT registered private customers or clients would mean instant death to such small businesses.
There are many similar thresholds, set by various branches of government, that determine the level of nonproductive red tape and expenses that business owners are obliged to incur. The jungle of dysfunctional websites, incomprehensible forms, nonresponsive call centres and additional regulatory expenses that needs to be navigated as a result of these fixed thresholds, presents a serious drag on productivity and growth.
I sincerely hope the president’s new “red tape reduction adviser”, Sipho Nkosi, will examine, and act on, this issue with urgency.
Iona Zietsman
Hout Bay
JOIN THE DISCUSSION: Send us an email with your comments to letters@businesslive.co.za. Letters of more than 300 words will be edited for length. Anonymous correspondence will not be published. Writers should include a daytime telephone number.
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LETTER: Tax deduction for retirement savings needs urgent attention
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.