Evaluation of tax preferences for SMEs: A case of small businesses in Gauteng, South Africa

Abstract

Background: Small businesses play a significant role in the alleviation of unemployment, poverty and inequality. In recognition of the key role played by small businesses, the South African government has implemented small- and medium-sized enterprises (SMEs) tax preferences to support this sector.
Aim: This study evaluated contemporary tax preferences for SMEs in South Africa.
Setting: For this study, small business owners and tax practitioners in the Gauteng province of South Africa were interviewed.
Method: The study employed a qualitative research approach. Semi-structured interviews were utilised to solicit information from 25 small business owners and 22 tax practitioners.
Results: Small business owners often lack awareness of the turnover tax regime. Tax practitioners tend to prefer the small business corporation (SBC) tax regime over the turnover tax regime because of misconceptions about the latter, its high administrative burden and the fact that the tax base for calculating tax payable is taxable turnover rather than taxable income. Many clients utilising the SBC regime have already exceeded the R1 million taxable turnover threshold. Shareholding and business activity are primary disqualifiers for SBC eligibility.
Conclusion: More educational initiatives are necessary. The shareholding requirement should be reevaluated, as it may hinder entrepreneurial activities.
Contribution: This study enhances knowledge by sharing the perceptions of small business owners who benefit from tax preferences for SMEs and the tax practitioners who assist them with compliance. As tax policies evolve with changing circumstances, it is crucial to continually evaluate whether the SBC and turnover tax regimes achieve their intended objectives. This study will aid the National Treasury and the South African Revenue Service (SARS) in this assessment.