Because they operate only with cash, many of SA's estimated 97 000 taxis see no need to join the tax system. It is estimated their absence from it costs the exchequer billions of rand each year. Now finance minister Trevor Manuel hopes an amnesty will make them see the error of their ways.
Though taxi owners are the first main target, the tax amnesty is being offered to all small businesses with an annual turnover of no more than R5m. Taxes and penalties will be waived for assessment years up to March 31 2004. But in return they must pay a nondisclosure penalty of 10% of 2005 taxable income. Manuel says the first phase of the amnesty will run from August this year to May 2007, concentrating on taxis. Other sectors will be targeted in the next phase.
It is a bold bid to stimulate economic activity in the small to medium-sized enterprise (SME) sector and also to drive black economic empowerment (BEE).
The amnesty is accompanied in the budget by other far-reaching tax relief measures for the SME sector, and is further proof of government's belief that the economy is best served by relaxing the regulatory environment, particularly for SMEs.
Taking advantage of the economic policy review meant to boost growth beyond 6%, lobby groups point to SA's regulatory costs as an impediment to growth. Among them, they say is a complicated and expensive tax compliance regime.
One of the stated objectives of the new tax amnesty is to facilitate participation in the taxi recapitalisation programme, which aims to replace the country's many ramshackle and unsafe vehicles with modern taxis. The programme has stalled partly because of operators' resistance to being dragged into the tax net. But it has also run into funding problems after government realised its initial plan would be more expensive than originally calculated.
In his budget speech Manuel acknowledged that economic growth and broad-based development can be held back by regulatory constraints. "The Accelerated & Shared Growth Initiative of SA is designed to ensure we understand these dynamics fully, and to prepare appropriate policy interventions."
Business Unity SA says assistance to small business is an engine of national growth and investment. According to Manuel: "One of the aims of the amnesty is to afford those who have been historically marginalised an opportunity to regularise their tax status."
A treasury department statement says: "Revenue collection is not the immediate goal of registering small businesses for tax purposes. Bringing people into the tax net is not always about immediate gains. It is also about future contributions and general improvement in the culture of compliance."
It says many unregistered small businesses want an opportunity to regularise their tax status without fear of excessive penalties. In the past, government has allowed amnesties for companies breaching exchange control rules. There has been criticism that no similar opportunity has been made available for small businesses, says the department.
"There is a clear commitment to ensure growth in the SME sector coming out of this budget," says Boris Pelegrin, a senior manager at investment advisory firm Maitland. "This is followed by last year's emphasis on the easing of the tax compliance burden for the same SME sector. I think a lot of small businesses will take notice of these significant shifts in the tax regime and that will expand the tax base."
Further tax relief coming out of Manuel's budget includes an increase in the annual turnover threshold, from R6m to R14m, to qualify as a small business. As a result, many more companies will qualify for the corporate tax regime, which offers a more lenient tax regulatory framework than the one directed at larger corporations.
In addition, the taxable income threshold for the lower 10% rate will be increased from R250 000 to R300 000 and the small business income tax exemption threshold will be increased from R35 000 to R40 000. The one-time capital gains tax relief will increase from R500 000 to R750 000 and the asset value threshold for immediate depreciation will increase from R2 000 to R5 000.
BEE will definitely benefit from these tax relief measures because many black companies are to be found in the SME category, says Pelegrin.
But Manuel has disappointed those who were expecting a direct windfall for BEE. There was no mention of increased allocations of funds for BEE transactions. That could signal a shift by government from a transaction-based BEE strategy to one that is driven largely by creating opportunities at SME level.
