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SA’s enterprise sector is critically ill

Government appears blissfully unaware of the impact its policies and decisions have on business.

The formal South African enterprise sector is critically ill. Were the company tax returns of the 768 000 companies combined and submitted as that of a single entity, there would have been no company income tax (CIT) payable to the South African Revenue Service (Sars) for three consecutive tax years.

Sars data on CIT confirms that the private sector is in a dismal state. In the tax years 2014 to 2016, assessed joint losses of all companies surpassed joint taxable income by R445 billion.

Taxable company income and company income tax, 2007 to 2016

Source: Eosa, Sars (data based on assessed CIT returns)

The above brings the following to the fore:

  • Total assessed taxable income of companies increased over the 10 years by R248.19 billion or 52.3% to a total of R722.6 billion.
  • Total assessed losses of companies had more than tripled from R236.3 billion in 2007 to R820.2 billion in 2016.
  • CIT increased by R59.92 billion to a total of R198.76 billion in 2016 (43.3% increase on 2007).

Less than 1% of firms pay 85% of CIT

To understand these figures, it is important to keep the following in mind:

If the CIT collected in 2007 had increased annually at the CPI inflation rate, National Treasury would have received an additional R52.8 billion on top of the R198.8 billion it did receive in CIT in 2016. Assessed taxable company income and CIT lagged significantly against inflation.

Assessed losses for 2014 to 2016 of R2 482.2 billion form a massive debt mountain and even if the environment for businesses improves, will be gobbled up by these losses before they become liable for CIT again.

The only reason treasury still reaps income from CIT is because a small minority of firms remain profitable. These are mainly companies with a taxable income of R10 million and more.

In fact, the percentage of tax-paying companies declined from 27.9% in 2007 to 24.23% in 2016.

Source: Eosa, Sars

Just 0.75% of the firms with taxable turnover above R100 million pay 85% of all company income tax into Sars coffers.

With 42% of the 2017 company tax returns already assessed by Sars, a fourth year of being in the red seems most likely.

Consider in addition:

  • Dismal GDP growth of 0.8% in 2018
  • The additional medication of expropriation without compensation being added to the anti-growth BEE treatment
  • Electricity tariff increases double the inflation rate to finance an entity that is incapable of ensuring constant energy supply, and
  • A public sector that had metamorphosed from a facilitator of services and infrastructure into a parasite not delivering proper education, proper law enforcement and reliable infrastructure.

Turnover growth since 2018 in negative terrain 

Mike Schüssler of Economists.co.za reckons that since mid-2018, the turnover growth of companies in the non-financial sector is negative when considering inflation (see graph below).

Source: Eosa, Economists.co.za

Based on former Bosasa boss Angelo Agrizzi’s evidence at the Commission of Inquiry into State Capture about bribery, one can state that, annually, he had packed stacks of bribe money that exceeded the taxable income of 98% of the country’s formal enterprises.

Government appears to be totally unaware of the negative impact of its policies and poor performance on the private sector, especially small and medium enterprises. 

Johannes Wessels is director of the Enterprise Observatory of SA (Eosa).

This article was originally published on Eosa here

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And then they still want to introduce another new tax (after sugar tax) called carbon tax later this year. Taxed to death is the poor taxpayer.

Seems like any South African with a business idea has to put in their plans ways to take their business off-shore. Environment here totally un-healthy.

You sound as if you are complaining. The majority voted ‘yes’ for this situation in the referendum. Now they may enjoy the fruits.

Interesting point. The question posed by the referendum was: “Do you support the continuation of the reform process that the State President began on 2 February 1990 which is aimed at a newly negotiated constitution? ” Would the majority have voted “yes” if they knew that today it would mean expropriation of land without compensation or that Jacob Zuma would become president. Never! White people voluntarily gave power away on the understanding that we would have a constitutional democracy where property rights are respected. Not another basket case Zimbabwe type country. FW and his lieutenants Dawie and Roelfie hoodwinked all of us.

Voting “Yes” was without a doubt a morally correct thing, how could anyone vote “No”. That decision was always going to carry some risks, but I believe things would have been worse with a “No” vote.

People are just taking all the profit out as salary and not reinvesting. If there is no economic growth, why would you?

Business is the enemy of labour and the state.

Friends of the state are employees in state owned enterprises and the people on government grants.

Bee charters are designed to throttle business, and govt red tape and taxes just make it too much trouble to go out there and do something.

If anyone is still up for it, we’ll kill you with Eskom and municipal charges.

If by any miracle you’re still standing, well, we’ve got the SARS tax audit in reserve.

You’ve got be crazy to try and run a business here.

Are they ever going to raise the R1 million annual turnover for small businesses to start paying VAT? How many years has that been the same. Talk about raising taxes by stealth and bracket creep… Just as your small business starts to grow, it gets tripped up by the 15% VAT charge. Government is certainly not making it easy for small business to grow into medium business or big business with all the one sided tax laws and labour laws.

Govt/SARS only know how to penalize. No tax incentives to grow the economy.No logic box thinkers in Govt/SARS.

Hopefully CR will change the status quo – after all, he is both a capitalist and businessman. I agree however that as long as the taxpayer is squeezed, top heavy and unproductive employment in the government sector and racist BEE policies in place then nothing will change.

CR obtained his money via fortunate and clever BBEEE deals. He bought businesses with that money which are now managed by competent employees. He is neither a capitalist nor a businessman.

The frenetic feeding frenzy of corruption and gluttony by the ANC has blinded them to the obvious fact that businesses have been under increasing pressure over the last few years. While we are led by socialist /Marxist fanatics, business will always be seen as the enemy of “the people”, irrespective of their hollow words to the international community as they stand with their begging bowls out. SA has reached the tipping point where people and businesses have said “enough and no more”. The tax base is shrinking fast, the money is drying up. When will they learn ?

Less than 1% of firms pay 85% of CIT

Average ANC/EFF official: “Ok, lets slay the golden goose.”

“Government appears blissfully unaware of the impact its policies and decisions have on business.”

That only makes sense if one believes Government cares about business or the economy. The alternative is to believe the ANC is still stuck in “bringing the economy of SA to its knees”. — Occam’s Razor rules.

Seems the regime only knows things from Das Kapital than knowing how to run a country

Yikes!

So “Government appears to be totally unaware of the negative impact of its policies and poor performance on the private sector, especially small and medium enterprises.” But surely the ANC Batho Batho Trust and Chancellor House investment vehicles should have some vague idea of decreasing profits?

Or are their funds simply derived from corrupt BBEE deals where the niceties of efficiency are absent?

No doubt Dear Cyril will soon express his “surprise” yet again.

Definitely not the only sector that is “critically ill”…

If it’s critically ill, then one can expect it to DIE soon(?)

On the industry’s Death Certificate it will be noted that the “cause of death” was a widespread disease, identified as Transformation.

(…no western, industrialised economy can ultimately survive such an economic experiment. A proper basic education since 94 could’ve done the trick today…but no….ANC decided on a different fast-track approach AA/BEE….to which SA is now counting the cost. We struggle to compete globally.)

In SA today we are subject to what I term; EEM.

Exorbitantly Expensive Mediocrity … certainly from anyone in any of the Public Service Sector.

But Old Mutual said only yesterday we must bring our money back and start buying SA equities.
So who do we believe? MS or OM?

Politicians think in short term bytes. They are not concerned about the long term future of a country, merely about getting into and staying in power. When they do show an interest in economics, they seem to be only interested in how much they can steal for themselves. At least that is what our current crop have shown us. Time for a change.

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