LETTER: Red tape on VAT registration impedes SMEs

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

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