Impact of tax legislation on economic growth in relation to small business development in South Africa

Abstract

The overall purpose of this study was to explore whether tax legislation has an impact on economic growth in relation to small business development and whether the issues of economic growth, policies and strategies also impact the development of tax legislation. The objectives focused on gaining an understanding of the economic policies and institutions related to small business development, the relationship between developments and changes in tax legislation with economic development strategies in South Africa and finally a critical analysis of the role that tax legislation played in stimulating or hampering economic growth in South Africa. A brief historical exposition of the post apartheid era is given as well as highlighting the focus and emphasis on overhauling the whole economic and policy framework in place to accommodate initiatives creating a synergy between the first and second economy. The emphasis of Government in placing a policy and institutional framework in place that fosters employment creation and poverty alleviation is outlined. Furthermore, economic growth policies initiated by Government over time ranging from RDP, GEAR and AsgiSA to the institutional frameworks and institutions set up by Government to accelerate the growth of small businesses as a way to create jobs and alleviate poverty is also explored and it is argued that despite the Government having good intentions, policy measures suffer from weak execution plans resulting from a general distrust of external agencies by SMMEs and the agencies inability to generate sufficient awareness of their existence and effectiveness. Furthermore, an exploration of tax legislation pertaining to small business is given. The study concludes that several issues ranging from compliance costs to government interface issues are important obstacles in small business development. In this study existing literature on tax legislation, small business development and economic growth policies was explored. The study also evaluated existing survey’s and case studies on small business development and the business environment in South Africa constituted the units of analysis. In concluding this study, the following recommendations are made: <ul> <li>Government initiatives need to be publicized among the relevant target audiences.</li> <li>Removal of regulatory obstacles to the informal sector as it acts as a barrier to development by keeping a large, energetic, and entrepreneurial group of black South Africans out of the formal economy.</li> <li>Co-ordinate approach of government departments concerning development of SMME policy.</li> <li>Need for supportive environment for SMMES through initiatives such as free training and mentorship and funding the payroll agents for small business.</li> <li>Review of the Tendering process- service providers need company registration and tax clearance to be eligible for tendering therefore people end up registering many companies and in the process are disqualified as SBCs.</li> <li>Removal of limitations placed on SBC eligibility to more than one business as long as the total revenue of the businesses is less than R14 million.</li> <li>Offer more assistance to start-up or expansion businesses beyond the initial stage to a point were the business is successfully set up and all operating procedures are in place.</li></ul> Copyright