Let’s first get the bleak news out of the way. South Africa’s economy is in the doldrums and is expected to grow at less than 1% this year. There is still no solution for our energy crisis and over-expenditure and corruption in state departments limit our ability to turn things around. But on 26 February, Finance Minister Tito Mboweni announced the nation’s 2020 budget which is surprisingly friendly towards small business.

From tax relief to incentives for entrepreneurs, the budget speech gives SME owners some hope in these difficult times. Below are the key points from the 2020 budget speech that will affect your small business:

Widespread tax relief

After the announcement of interest rate reductions earlier this year, the National Treasury is committing to reducing the financial strain on South Africans. The plan is to achieve this through tax relief that benefits those who need it the most.

For starters, there will be a reduction in personal income tax for those earning less than R500 000 per annum. Additionally, there will be no increase in value-added tax (VAT) and company tax remains unchanged. All this means that consumers will have more money in their pockets to spend on local business while SMEs maintain the same tax commitments from last year.

Mboweni also alluded to planned tax reform which will give preferential treatment to small businesses. This seems to already have been set in motion by increasing the VAT registration threshold for small businesses to R83 100, above which income is taxable.

Eliminating barriers to entry

Lowering the cost of doing business was mentioned as a priority by the finance minister. Indeed, small businesses have great potential to stimulate the economy and create jobs, which is why increasing incentives for entrepreneurial activity is an excellent strategy.

The National Treasury will set aside R1.2 billion over the next three years for the Small Business and Innovation Fund. This is an initiative by the Small Enterprise Finance Agency which provides loans and grants to small and micro-sized businesses in the early stages of the business development cycle.

Mboweni mentioned broadly that the government will dedicate R6.5 billion to small business initiatives, R2.2 billion of which will go to the Small Enterprise Development Agency. Small Business Development Minister Khumbudzo Ntshavheni still has to clarify how the balance of the allocation will be spent on small business initiatives.

Finally, the 2020 budget speech included R107 million that’s earmarked for the renovation of 27 industrial parks in townships and rural areas where much of the small and micro-sized business activity happens.

Altogether, the budget speech shows promise, but it is how it will be implemented that will determine whether we’re on the right track. Follow us on social media to be the first to get SME news and insights from Rae and Associates.