Given the depths of the economic crisis South Africa is facing in the wake of the COVID-19 pandemic, businesses would have hoped to have seen bolder economic reforms and more support from the 2021 Budget Speech from Finance Minister Tito Mboweni, says Steven Heilbron, CEO of the Connect Group.
Heilbron says that the decision not to increase VAT or personal income tax is welcomed. It is positive that low to middle income earners will get a small amount of income tax relief from the Budget for 2021/22. Retailers and other SMEs will be relieved that the cash-strapped consumer will not be paying more PAYE.
On the downside, the steep increase to the fuel levy and punitively high increases to alcohol duties are negative for retailers. Heilbron notes that the liquor supply chain has already had a difficult year following multiple alcohol and tobacco bans at various stages of lockdown.
“The eight per cent increase in alcohol excise duties indicates that government has little sympathy for the plight of the many retail merchants, taverns and restaurants negatively affected by the alcohol bans,” says Heilbron. “The increase in the fuel levy is even worse news.”
Heilbron says that higher fuel prices affect inflation above the board because transportation costs for people and goods rise along with the petrol price. He notes that the latest fuel levy increase means that 37% or R5.84 on every litre of petrol goes towards paying various levies and taxes.
Another disappointment is that the government has not taken the opportunity to more aggressively bring down corporate income tax to help encourage investment and to nurture entrepreneurship, says Heilbron. Although a one percentage point decrease is pencilled-in for next year, South Africa’s corporate income tax rate remains higher compared to most other countries.
“The Budget offers few new ideas about how we can reignite economic growth in South Africa,” says Heilbron. “Given that our country has had one of the worst economic years recorded and with retail sales falling 6.9% overall, we hoped for more imaginative and daring interventions.”
In this difficult economic landscape, the Connect Group has stepped in with solutions to help retail businesses reignite growth. For example, Capital Connect is an unsecured finance offering designed with the retailer in mind. It is a fast cash injection providing retailers with opportunity capital of up to R2,5m in just 24 hours.
Independent research confirms that the complexity and inaccessibility of financing solutions is a major obstacle to growth for small businesses in South Africa. In a PwC South Africa survey, more than half of respondents (55.4%) believe that there is not enough funding in South Africa.
“When retail merchants can access quick, reliable funds, they can grow their businesses and maximise their earning potential,” says Heilbron. “Providing this ease of financing is key to helping retailers reach their potential, so they can help drive job and wealth creation in their communities.”