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Business confidence set on a downward trajectory

Corruption and captured cadres have created an insurmountable barrier to trade.

According to Trading Economics, South Africa’s jobless rate has reached an all-time high of 27.7%. Establishing a business friendly environment will encourage new investment, and the establishment of new businesses. The consequence of this will be more jobs, and new income that will add more taxes to the fiscus.

Sadly, the recent shock waves flowing from the Mining Charter and the ham-fisted punch delivered by the Public Protector have done irreparable damage to business confidence and the economy. Even more perturbing, these actions display an ignorance of the law and the business environment.

The World Bank published its Doing Business 2017 report before these recent shock waves.

In comparing 190 countries, the World Bank has limited its analysis to 10 categories covering regulatory procedures that most businesses have to deal with. It is useful to compare South Africa’s score to a regional competitor, such as Mauritius, as well as to a developed trading partner.

Score: Scale of 1 to 100

 

South Africa

Mauritius

United Kingdom

Starting a business, registration procedures

80.47

91.65

94.58

Dealing with construction permits

68.21

76.55

80.34

Getting electricity

63.18

63.22

89.12

Registering property

59.03

61.99

74.11

Getting credit

60.00

65.00

75.00

Protecting minority investors (publicly traded corporation)

70.00

65.00

78.33

Paying taxes

81.09

82.96

90.74

Trading across borders

58.01

78.67

93.76

Enforcing contracts

54.10

68.65

69.36

Resolving insolvency

57.94

69.06

82.04

This report does not paint a rosy picture. On a scale of 1 to 100, South Africa scores 74. This score should be reduced by the additional problems facing South African businesses such as safety and security, complying with the Broad-Based Black Economic Empowerment Regulations, onerous labour laws, and a unionised work environment. Underlying diseases such as TB, HIV, diabetes and malaria can further negatively impact productivity, and raise the cost of productivity.

The current tax environment does not give one comfort either. The e-filing environment easily enables the registering for tax, paying taxes and rendering tax returns. However, there have been too many complaints regarding assessment errors, and delays in paying out tax and VAT refunds, to not be concerned. It would give the tax paying public comfort if the Sars’ staff were required to jump the same competency hurdles as is required of Tax Practitioners.

South Africa also has a very active informal sector, including transport and retail outlets such as spaza shops. Many of these businesses do not operate within the regulatory environment, and can undercut costs. They may provide unfair competition to a regulated business, and they may provide artificial barriers to entry. The Uber/taxi saga is a case in point. Uber provides young drivers with training, enables them to obtain finance to purchase their own vehicle, and create their own business. However, these young entrepreneurs are now being subjected to violence.

The recent 2017 Mining Charter announcement is possibly an indication of more such onerous vague punitive regulations waiting in the wings that can be dumped on the unsuspecting public. And let us not forget the so-called Wealth Tax that has raised its head, and is lurking in the shadows waiting to be born.

Our new entrepreneur faces a rocky road, and must have a huge amount of optimism to even think of sinking capital and effort into starting a new business, and assuming all the risk. However, the entrepreneur of today is very mobile, and in this globalised environment, special skills can gain them entry anywhere. Other countries may entice these entrepreneurs with favourable tax laws for new investment, security of accommodation, international schools and universities of a high standard. South Africa has already lost many entrepreneurs, and this brain drain is likely to escalate.

In addition, South Africa shouldn’t expect established entrepreneurs close to retirement to continue battling a hostile environment. It may be easier to sell up and invest in an offshore global fund.

Business Confidence Index – Department of Trade and Industry 

 

Barbara Curson, CA(SA) and Tax Specialist, dedicated 20 years to unravelling tax avoidance structures at Sars.

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Does the Z-team care?

Does the Z-team understand English?

Does the Z-team understand Economics?

Not at all it seems.

” We have a good story to tell ” and ” I am doing a good job ” Enough said

End of comments.

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