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Budget didn’t do enough for professional services SMEs

Budget didn’t do enough for professional services SMEs

The South African Institute of Professional Accountants (SAIPA) has applauded the additional support given to small and medium-sized enterprises (SMEs) in the 2014 budget. However, says the institute, the Minister missed an important opportunity by failing to extend this support to those SMEs providing professional services.

“Professional Services like accounting and bookkeeping, administration, software development, architecture and drafting and on the like are all vital to an efficient modern economy,” says Ettiene Retief, chairperson of the National Tax and SARS Stakeholders Committees at SAIPA. “And yet the easing of the tax burden for SMEs explicitly excludes many of these businesses. This is counterproductive because these types of small or micro businesses provide just the sort of services that foster the growth of larger businesses and thus increase employment.”

In Retief’s view, professional services SMEs merit encouragement from a number of points of view. As noted, they provide vital services for other businesses thus support business activity, and they also facilitate the transfer of skills. For example, a one-person business providing bookkeeping services might employ a relatively unskilled person as a receptionist/ administrator on the basis that training would be provided “on the job”.

“Many people in our country simply don’t have the opportunity to attend a college or university but still have an immense contribution to make to the economy, given half a chance,” says Retief. “A small professional services firm is an ideal environment in which to acquire basic skills that could prove to be the first step up the skills ladder, to be followed later by further study, part-time perhaps.”

A key advantage of such small-scale professional services firms is that they do not require large amounts of capital to set up.

Retief believes that SME incentives are focused on the manufacturing and export sectors at the expense of professional services. His point is that manufacturers and exporters are highly vulnerable to international economic developments. “For a stable economy, we also need a strong domestic economy, which in turn requires the availability of affordable professional services,” he says. “At the same time, professional services themselves are highly exportable in today’s connected global economy, as countries like Kenya and India are showing. An app developer or a bookkeeper can build up a global business as well as a manufacturer or miner—and one that might be less affected by every economic downtick.”

Government’s apparent reluctance to include professional services SMEs in its incentive packages may stem from the once-prevalent practice of executives leaving companies in order to provide “consulting services” to the same company. Such arrangements were widely seen as attempts to evade labour and empowerment laws. Retief acknowledges this but observes that the labour market and business in general has moved on significantly, and these conditions no longer apply.

“We must also recognise that tax incentives can only do so much to promote small business,” Retief concludes. “The blanket exception to empowerment legislation for SMEs ought to be carried through to other codes, such as, for example, workplace compensation. Such initiatives offer a wonderful stimulus, and should be pursued in order to help grow small-scale professional services, which remain a huge untapped opportunity for job creation and skills transfer.”