A comparative analysis of tax incentives for investors in SMEs between South Africa and selected G20 countries

Abstract

In the present economic climate in South Africa, sustained growth in terms of job creation and company expansion is essential. Small businesses in South Africa have the ability to play a big part in the nation’s economic destiny, owing to the fact that they are the engines of growth, job creation, and technological innovation in the country. Financing is a significant barrier for these businesses, which is hampered by a limited supply of capital. Access to finance and investors is critical for the success of small and medium-sized enterprises (SMEs). Giving tax breaks and other government incentives to SMEs account for a significant share of a government’s contribution to the expansion of the sector. Many countries in the G20 provide a variety of tax advantages to stimulate investment in small and medium-sized enterprises as a general rule. This includes South Africa. Small and medium-sized enterprises in South Africa are eligible for tax incentives under section 12E of the Income Tax Act and paragraph 57 of the Eighth Schedule to the Income Tax Act, respectively. In addition, SMEs were eligible for tax benefits under section 12J of the Income Tax Act, which was set to expire on 30 June 2021. This study was prompted by the issue posed by the National Treasury’s decision, since SMEs now receive little assistance in the form of tax breaks. The goal of this research was, therefore, to first conduct an in-depth review of the tax advantages available to investors in SMEs in South Africa and a number of other countries of the G20. A second step was to conduct a critical analysis in order to determine the design features of these incentives and how they relate to one another in terms of scope, eligibility requirements, and administration procedures. According to the findings of this study, there are several shortcomings in the tax relief measures available to SMEs in South Africa, particularly when considering the history of these incentives, which eventually led to the demise of section 12J and severe criticism of the effectiveness of section 12E, among other things. Furthermore, it was stated that the administrative burden placed on the Government and SMEs had been significantly raised as a result of the many adjustments and anti-avoidance efforts adopted by the South African Government. As a result, the value

provided by this research was to aid in the knowledge of alternative relief measures for investors in SMEs that are already in use by other G20 nations, as well as how they are designed. In this research, recommendations were given on how to perhaps improve or enhance the design of South African tax relief for investors in small and medium-sized enterprises. Therefore, a thorough evaluation of prior research on the various small company tax discounts offered by South Africa and the G20 countries was conducted in order to inform this study. It was decided to use a post-structural or doctrinal study design for this research approach.