A Comparative Study of Tax Relief Measures for Small, Medium and Micro-sized Enterprises in South Africa and other Developing Countries

Abstract

This study aims to examine the tax relief measures for small, medium, and micro-sized enterprises (SMMEs) in South Africa compared to other BRICS nations. The study further seeks to present to the policymakers in South Africa, proven and authenticated options for tax relief, similar to those adopted by other developing nations. This will assist the government in exploring feasible and effective strategies that can be included in the tax legislation of South Africa to alleviate the tax burden on SMMEs, thus promoting growth in the economy of South Africa. SMMEs play a crucial role in the economic development of countries worldwide, in that they create jobs that reduce unemployment, lessen poverty, and contribute positively to a country’s GDP (Aucamp, 2010). According to Statistics South Africa, in 2022, the country reported an unemployment rate of 33.9% in quarter two, with the unemployment rate for the youth at 46.5% in the same quarter. The youth remain susceptible to unemployment in the country, which increases dependency on the government and indirectly contributes to the high crime rate in South Africa. There is, therefore, a great need for the government of South Africa to support SMMEs with the purpose of positively impacting the nation's economic development. The impact of COVID-19, load shedding, and high interest rates are some of the challenges the SMME sector faces, putting the sector on the verge of collapsing. It is of paramount importance that the government of South Africa relook the currently existing tax relief measures in favour of SMMEs in order to relieve the sector from the economic factors adversely impacting it. The implementation of this measure will not only prevent the downfall of SMMEs, but also foster their growth, potentially aiding in combatting the country's unemployment crisis. From the literature review, it was found that there is currently no global definition of SMMEs. Every country applies its definition based on factors and circumstances specific to one country. The consensus, however, is that, despite the absence of a common definition of SMMEs, these entities contribute significantly to the economic growth and GDP of each country. The BRICS nations, in particular, have recognised this fact and have adopted several tax relief measures in the quest to support the development and sustainability of smaller businesses. Based on the evaluation of tax relief measures available in South Africa, compared to those offered in other BRICS nations, the study found that tax relief measures available in South Africa support only small and micro businesses. The requirements are stringent, resulting in few businesses qualifying for the incentives. The relief measures further support more formal businesses and have less regard for informal businesses. There are no specific tax incentives for informal SMME businesses in the rural areas where most of the unemployed population of South Africa are situated. There is thus a lack of support for the development of the rural economy. Furthermore, there is a lack of support for medium- sized businesses and those seeking to elevate to larger-scale businesses.