Tax amnesty needed for small black-owned firms

Taxation is the great leveller of economic activity and if this is applied to black empowerment initiatives, then maybe the playing field is not level, and it may be high time government does something about it.

Government has indicated that next year it plans to embark on a number of large capital-spending projects with the aim of countering unemployment, which currently stands at an official 28%. Money for such projects has been accumulating steadily for some time as, under the firm management of the Department of Finance, tax revenues have increased to an all-time high, government debt has been reduced drastically, government department spending tightened and certain initiatives have been implemented to broaden the tax base.

The benefits are far more extensive than an amnesty programme to a relatively small, but wealthy part of the population.

Paul Vecchiatto, journalist, ITWeb

The falling rand exchange rate from 1999 to 2001 also helped increase the profits from exports, thereby raising the amount of corporate tax paid. This year, finance minister Trevor Manuel was in the enviable position that any finance minister could hope for, of announcing an increase in government spending and a reduction in taxation rates. However, the strength of the rand and the slow economic growth rates indicate that this revenue holiday may be close to being over.

One initiative announced by Manuel in this year`s budget speech was the tax amnesty for those who had taken undeclared money out of the country and were not disclosing any of the earnings from this. So far, according to the National Treasury, this has been quite a success, as a number of errant taxpayers have now applied for this amnesty, by disclosing the amounts and not having to pay the normal penalties.

It can be argued that this has been good for the country in that it has broadened the tax base slightly. It also allows such wealthy individuals to bring money back into the country, if they need it to invest in various business ventures.

But there is a larger untapped potential tax base, and because of this is excluded from being included in the general economic activity of the country, and in particular, its ability to tender for government-linked business.

Current legislation and policy dictates that in order for a company to bid for government business, a tax clearance certificate is required. While this requirement is listed as the last, after the preferential policies of using black-owned firms, it is by no means the least.

The Census of IT Firms in the Western Cape, carried out this year by the Cape IT Initiative, indicates there are about 1 200 such firms in that province, the vast majority of which are small and white-owned. The problem with the census is that it was not able to really gauge how many small black-owned IT firms are out there because many are too afraid of coming under the scrutiny of the SA Revenue Services should they fill in such a census.

This problem spreads across all industries as many small black-owned firms are years behind on their taxation for various reasons, including historical, but the one major reason is the lack of administration skills.

Surely it is time for government to give those companies a break and start a programme of tax amnesty. The benefits are far more extensive than an amnesty programme to a relatively small, but wealthy part of the population.

Such benefits include allowing them to take part in mainstream economic activity, raising the official employed percentage, broadening the tax base and thereby bringing down overall tax rates which is good for foreign investment, and allowing previously disadvantaged people a fair chance of building their own sustainable companies that did not grow out of some kind of payout by previously white-owned firms.

This amnesty could be phased in. For instance, because the ICT sector has been earmarked as strategic, it could be one of the first. Construction companies that could bid for government capital projects next year could also be on the list.

It has often been said that death and taxation are two of life`s certainties, as both are naturally occurring facets of modern life and while there is no amnesty for the ultimate end of life, there can be one for tax and allow a more natural form of economic empowerment to emerge.