VAT increase will cripple small businesses – businessman

Finance minister Enoch Godongwana should abandon plans for a VAT increase as that will cripple small and medium enterprises (SMEs).

Godongwana is expected to deliver his budget speech on Wednesday afternoon which was cancelled at the 11th hour last month after divisions within the government of national unity over the proposed VAT hike from 15% to 17%.

Shawn Theunissen, founder of Property Point and Entrepreneurship To The Point, said an increase in VAT would also weaken consumer spending and stall economic recovery.

“While the Treasury is searching for ways to boost revenue, SME development organisations argue that raising VAT is the wrong solution for an already struggling economy,” said Theunissen.

“A VAT hike will drive up costs for small businesses, forcing them to increase prices and make it even harder to compete in an economy where consumer confidence is already low. Instead of making it easier for SMEs to grow, we’re seeing policies that will squeeze them out of the market.”

He said that in 2023, the National Treasury announced a gradual reduction in corporate tax rates, but small businesses saw little direct benefit.

“Each year, we hear about the government’s commitment to supporting SMEs, but tax policies continue to add pressure rather than ease it. Instead of relief, we’re seeing additional burdens that make it harder for small businesses to survive.

“If the government is serious about supporting SMEs, it should be introducing tax relief measures – such as VAT exemptions on essential business inputs or lower corporate tax rates for small businesses – not increasing the financial burden on entrepreneurs who are already struggling to stay afloat,” Theunissen said.

He said that beyond the VAT debate, SMEs were also grappling with delays in government support initiatives and growing frustration over access to funding.

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