The South African Treasury has announced plans to make the country’s business environment more favorable for growth in 2022. These changes, combined with the recent repeal of national disaster regulations, put small businesses in a much stronger position to accelerate the country’s growth and acceleration. economy.
This is important as SMEs continue to be the foundation of our economy, accounting for about 98% of all business activity and employing about 80% of the nation’s workforce.
One of the key areas of reform is corporate tax cuts, which is especially important because high taxes can cause businesses to move into the informal sector or shut down. The corporate tax rate will be reduced from 28% to 27%.
Downsizing is welcome, but external factors alone are not sufficient to make a country’s small businesses successful. SMBs also need to leverage the latest technologies to drive growth from within.
Expanding the tax base
Unfortunately, a significant tax gap still exists. Tax collections for the 2020-21 fiscal year were down 7.8% compared to the previous year, and small business corporate taxes were also down.
Similarly, the share of corporate tax in total tax revenue has continued to decline from around 30% a decade ago to 16.4% in recent figures.
To ensure that everyone contributes a fair share, paying taxes should be as easy as possible. That’s why the South African Revenue Service (SARS) is accelerating the digitalization of processes, helping businesses pay their taxes quickly, easily, and on time.
Currently, SARS is making great strides in this area, with eFiling accounting for 76.8% of total tax payments during the 2020-21 fiscal year.
Similarly, small and medium-sized enterprises (SMEs) in South Africa have the freedom to set up, store and file their VAT refunds to SARS on a cloud-based platform in one place.
Tax filing is just one example of the bigger promise of technology. As most small businesses have learned over the past two years, technology can significantly reduce errors and bureaucracy and give owners a clearer picture of their finances.
Two-thirds of key decision makers in small businesses believe that technology is a greater asset today than before the pandemic.
In fact, the “compliance costs” associated with tax returns are now at all-time lows, and that’s just the beginning.
The pandemic has also accelerated the digitization process. Strict lockdowns have restricted the movement of workers across the country, so the technology has been acquired to keep everyone connected.
In fact, two-thirds of key decision makers in small businesses believe that technology is a greater asset today than before the pandemic. This is a positive sign as businesses become more reliant on technology for many of their business operations, further tightening regulatory compliance for revenue services.
Open Banking: Connecting SMEs with SARS
One important prerequisite for empowering small businesses to control their finances is open banking.
Unlike traditional banking, where banks retain full ownership of customer data, open banking means that data can be shared across multiple financial institutions through an application processing interface.
This allows small business owners and accountants to provide broad insight into their company’s finances to make informed decisions and facilitate proper tax compliance.
Because data can be moved easily in open banking, small businesses can automate routine tasks like filing taxes so decision makers can focus more on driving growth.
As well as automation and improved visibility, open banking makes it easier for businesses to access funds and makes making and receiving payments faster, a feature essential to growing their business.
Closing the tax gap is essential to South Africa’s economic growth, and to achieve this, technology adoption by SMEs must be a top priority. The right tools are essential to accelerate business activity and stimulate economic growth.
Fortunately, small businesses are optimistic. Xero’s latest study found that 87% of small business owners are confident in what their business will do in 2022.
This success is in many cases due to the adoption of new software. 65% of decision makers believe technology has become more important to their business since the onset of the pandemic.
After two years of economic hardship, this optimism is a welcome change and a strong indicator of growth to come.
Digitization can further spur SME growth.
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