This is among several recommendations in the Davis Tax Committee's small and medium enterprise (SME) interim report released by the the Treasury. The committee is chaired by Judge Dennis Davis.
The report covers issues relating to the taxation of SMEs, including reviewing income tax incentives for small business corporations, the tax compliance burdens facing such businesses and reviews of the value-added tax (VAT) requirements.
Analyst all agree that SMEs drive job creation and the state is pumping billions into incentives to boost them.
But the committee suggested that some incentives can be done away with, such as the R1.4bn small business corporations incentive. This incentive could be redirected towards rewarding tax-compliant small businesses, to compensate them for some of the costs they had incurred in achieving their compliant status.
"This reward could take the form of a refundable compliance rebate," the report said, adding that it was of critical importance that the rebate simply redeploys the current small business incentive at no additional cost to the national budget.
The committee's interactions with industry revealed concerns regarding the high costs associated with complying with VAT requirements.
"This is not surprising given that most SMEs are required to complete six VAT returns a year," the report said. The committee added, however, that deregulation was not an option.
According to the report, VAT makes up 27% of total tax revenue and is the largest single target for fraudulent tax activity in SA. It says that the South African Revenue Service (SARS) has been confronted with fraudulent VAT refund claims averaging about R2bn.
VAT registrations are only compulsory for vendors with turnover of more than R1m.
South African Chamber of Commerce and Industry Senior Policy Consultant Pietman Roos said SARS needed to pay VAT refunds more quickly.
The committee said it had received numerous complaints about delays in processing VAT refunds, including charges that these delays had contributed to the eventual and unnecessary failure of businesses.
It recommended that a temporary solution would be for SARS to create a separate help desk.
A permanent solution would be sought during a substantial investigation into the VAT system, which the committee would undertake during the course of the rest of the year.
Source: Business Day via I-Net Bridge
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