Another writer has come out strongly in support of providing tax incentives for companies investing in SME's. Similar incentives have been implemented with great effect in the USA and UK and would be a welcome support for entrepreneurs in South Africa.


Ben B

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Stephen Gunnion
Johannesburg

GOVERNMENT should consider amending its tax policy to encourage more private investment in small and medium-sized enterprises (SMEs), FinMark Trust said yesterday.

This could lead to a more dynamic SME sector and much needed jobs, said FinMark. Government had invested significant political capital in the support of SMEs as they were recognised as key contributors to growth and employment.

However, FinMark CEO Mark Napier said that while there was government support at company level for SMEs, there was almost no support for private individuals wanting to invest in small businesses.

This contrasted with the situation in developed economies such as the UK, where private individuals received tax breaks for investing in small businesses, either directly or through investment vehicles called venture capital trusts.

Justin Liebenberg, senior tax manager at Grant Thornton, said incentives had been given to small businesses over the past few years, including lower tax rates and simplified VAT positions.

"These help with the financing requirements in the SME sector," he said.

Although it made sense to give tax incentives to individuals investing in the SME sector, Liebenberg said, government would have to make up the tax revenue lost somewhere else.

However, Napier said that when the UK first introduced venture capital trusts, the income tax rate deduction given to investors was 20%.

It later doubled that to 40%, implying the actual net cost to the UK exchequer was "pretty modest", Napier said. The current deductible rate is 30%.

Liebenberg said a hurdle could be the focus on empowerment, as many of the individuals investing in SMEs were likely to be white and this would dilute black economic empowerment in small companies that already had a black partner.

However, this should not be seen as a barrier.

"Isn't it better to capitalise better with equity and then find a BEE partner on that basis?" Napier said.


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