In a surprise announcement, Minister Godongwana announced a cut in the corporate income tax rate (down from 28% to 27%, taking effect for companies with a tax year ending on or after 31 March 2023).
“The corporate tax cut is good news for big business, and also for South Africa’s many small, micro and medium enterprises (SMMEs), which make up the vast majority of all businesses,” says Bradley Du Chenne, CEO of comparison platform Hippo.co.za. “Most corporates include small businesses across their value chains, so the more the bigger guys save, the more they can grow those value chains. So, while corporate tax cuts do not affect SMMEs directly, they do provide indirect benefits to businesses of all sizes.”
However, the big news for small businesses was Godongwana’s announcement of a new business “bounce-back scheme”, intended to support businesses in distress due to the Covid-19 pandemic. Research published by Cova Advisory in 2021 found that five out of every seven South African SMMEs fail within the first year. The same research showed that SMMEs are, in general, 26 times more likely to shut down in times of economic hardship than their corporate counterparts.
“When we pair those findings with BrandMapp’s 2021 data on the typical Hippo.co.za user – that is, South African adults aged 25 to 54 in SEM (socio-economic measure) 7 to 10 – an interesting picture starts to emerge,” says Du Chenne. “Some 61% of those consumers are self-employed, while 57% say they want to start a business within the next 12 months. South Africans have a keen spirit of entrepreneurship, and despite – or because of – the economic impacts of the Covid-19 pandemic, the country is currently experiencing a small business boom.”
Du Chenne adds that, despite the welcome tax relief announced in the speech, the stressed state of the economy means that small business owners must, now more than ever, seek out ways to reduce their expenses.
“We know from BrandMapp’s data that 53% of surveyed consumers feel much worse off, financially speaking, than they did two years ago,” he says. “We also know that 60% currently have short-term bank loans, and we’ve seen increased interest in comparing personal and business loan quotes on online comparison platforms. Now, more than ever, entrepreneurs and small business owners need to be comparing quotes and prices side-by-side to ensure they’re getting the best deals on essential business tools like fibre-to-the-business, business insurance, legal cover, and business loans.”
Those economic impacts are still being felt by the average South African. Minister Godongwana started his budget speech by saying that the national economic recovery has been uneven and that fiscal risks remain high, adding – to applause from many MPs in the chamber, and many South Africans watching at home – that “now is not the time to increase taxes and put the recovery at risk”.
The same is true for small business spending. The budget speech set the stage for South Africa’s small business growth – but that growth is only possible if small business owners are financially responsible.
“That starts with saving,” Du Chenne concludes, “and saving starts with weighing up your options to ensure you’re getting the best value for your business’s money – and with insurance cover that acts as a safety net in times of distress, saving you from having to tap into your business’s emergency fund.”
Disclaimer: This article does not constitute advice.