Opportunities and obstacles ahead: 2025 Budget’s impact on SA SMEs

The 2025 SA Budget Speech, delivered by finance minister Enoch Godongwana on March 12, emphasised the government’s fiscal policy, tax changes and economic reforms, focusing on stimulating growth, creating jobs and supporting small and medium enterprises (SMEs). 

There is provision for SMEs and the business community to find relief and growth opportunities through tax cuts, funding programmes and digital support, though challenges like government debt and infrastructure may hinder implementation.

There are four critical areas that were provisioned for in relation to SMEs and business: 

1. Tax relief for businesses; 
2. Funding and grants; 
3. Infrastructure development and power supply; and 
4. Digital transformation and innovation support.

Tax relief

The tax relief for businesses and lower corporate tax rates with a VAT relief allows SMEs to retain more profits for expansion.

This is a win particularly for SMEs since the business community contributes significantly to employment and economic development.

The key tax changes included a reduction in Corporate Income Tax (CIT) for small businesses with the government lowering the tax rate for qualifying businesses from 27% to 25%, encouraging reinvestment and growth, and allowing SMEs to retain more profits, potentially improving loan repayment rates.

Additionally, the VAT registration threshold was increased from R1m to R1.2m, reducing administrative burdens on microbusinesses.

The extension of the Employment Tax Incentive (ETI) further encourages businesses to hire young workers and was increased from R1,500 to R2,000 per qualifying employee.

Funding and grants

To support small business financing and improve liquidity for struggling businesses, the government announced funding and grants for small, medium and micro enterprises (SMMEs) with R10bn allocated to the Small Enterprise Finance Agency (SEFA) for funding start-ups and small businesses.

A new “SMME Growth Fund” worth R3bn was introduced by the government, specifically for businesses in key high-growth sectors such as technology, manufacturing and green energy.

The cherry on top was the announcement of an expansion of loan guarantee schemes, which is in collaboration with banks, and provides easier access to credit for SMMEs.

Infrastructure development and power supply

SA’s [poor] infrastructure development and power supply are the cause of the ongoing energy crisis.

The budget allocated significant funding to infrastructure to help reduce power outages that disrupt businesses. Particularly, funding has been set aside amounting to R50bn for renewable energy projects for the support of businesses involved in solar and wind power solutions.

As an incentive, businesses investing in alternative energy will benefit from a 125% tax deduction on renewable energy installations.

Furthermore, R30bn for transport and logistics has been provisioned and aimed at improving road, rail and port infrastructure, benefitting businesses reliant on efficient supply chains.

Digital transformation and innovation support

With the changing global landscape, the government enhanced its digital transformation and innovation support, introducing new measures to ensure SMMEs’ transition into the digital economy with grants for tech start-ups in fintech, e-commerce and artificial intelligence, and support for e-commerce businesses, which includes tax breaks for digital entrepreneurs.

This innovation support considers training programmes as part of capacity building in digital skills to help small business owners adopt new technologies, enabling SMMEs to compete in the global market.

Fintech solutions could receive more government backing for digital platforms. Small business owners should take advantage of the available incentives and remain proactive in navigating economic uncertainties.

Challenges ahead

While the 2025 Budget Speech brings wins for SMEs and the business community at large, there are also concerns to be considered. Essentially, the real challenge lies in implementation.

Government debt levels are high and the government’s ability to sustain SMME funding remains uncertain due to a high debt-to-GDP ratio; this was projected to be about 75% to 78% at the time of the speech.

Furthermore, bureaucratic delays in the disbursement of the SEFA funds could slow down the impact of initiatives. Historically, bureaucratic inefficiencies and red tape have slowed the disbursement of funds.

Moreover, many entrepreneurs struggle with compliance issues, making it difficult to access government-backed financial support. There is an urgent need for simplified funding application processes, financial literacy programmes and digital platforms to ensure accessibility.

Businesses carry the country’s employment responsibility and providing employment opportunities remains a burden on SMMEs, while this important community still struggles with structural barriers such as access to funding and market entry challenges.

Stats SA’s Quarterly Labour Force Survey results for the fourth quarter of 2024 notes SMMEs as being the backbone of SA’s economy, contributing over 40% to GDP and employing about 60% of the workforce.

The business community has been relatively well accommodated in the 2025 budget. However, with a slow GDP growth, high unemployment, persistent power challenges and a constrained fiscal environment, the government needs to strike a balance between economic stimulation and fiscal prudence. 

SMEgo is a one-stop digital solution from Old Mutual that empowers SMEs to run and grow their businesses by providing business support including funding. Visit Smego.co.za or download the SMEgo app via Google Play or the App Store.

This article was sponsored by Old Mutual Corporate. 

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