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Tax increases ‘should be kept to minimum’, says Sacci

| Economic factors

Any tax increases to be announced in the budget on Wednesday should be kept to the bare minimum to avoid putting more pressure on small businesses and consumers, says South African Chamber of Commerce and Industry (Sacci) acting CEO Peggy Drodskie.

While the chamber understood the need to have a "greater inflow" of funds into government coffers, SA needed a special focus on the plight of small businesses, Ms Drodskie said.

"We hope that these (tax increases) are going to be kept to the bare minimum because as it is at the moment, the cost of doing business in SA is very high and we do not want to add an additional burden, particularly to the small business sector."

Finance Minister Nhlanhla Nene is expected to announce more tax increases than in previous budgets as the government tries to close the large gap between spending and revenue.

With the government already having put a spending ceiling in place, the focus would fall on taxation as the key to reducing the budget deficit, said Old Mutual Investment Group chief economist Rian le Roux.

Raising taxes to reduce the deficit was "a small price to pay" rather than the alternative, which was to risk having SA’s sovereign credit rating downgraded to junk status, a slump in the rand, surging inflation and higher interest rates, he said.

Small business owners and consumers have had fuel price relief over the past six months. This will be slightly reduced by an expected 80c/l increase in the petrol price next month.

SizweNatsalubaGobodo tax services head Kemp Munnik said simplifying the tax structure for small and medium-size enterprises (SMEs) would do a lot to support economic growth. He said the Treasury should offer more incentives to small businesses while reducing red tape.

"In general, SMEs are struggling to implement the current tax structure and while there are incentives they are not working as they should. Perhaps it’s time for the government to consider a simple flat tax," he said.

HSBC SA economist David Faulkner said the government was likely to meet its budget deficit target of 4.1% of gross domestic product in the 2014-15 year. However, weak economic growth and low commodity prices presented risks to the Treasury’s economic outlook and revenue projections.

The government’s wage bill, management of state-owned enterprises and rising contingent liabilities were also key fiscal challenges, he said.

HSBC is expecting economic growth of only 1.6% this year and 1.9% next year because of the country’s energy crisis.

Ms Drodskie said SMEs were feeling "relative optimism" this year, boosted by last year’s establishment of a Department of Small Businesses.

Sacci’s trade conditions survey rose sharply last month, to 62 from 56 in December, amid higher sales and new orders.

Sacci said it was concerned by news that some municipalities would be merged. "By having fewer municipalities, theoretically the costs should be reduced because the government probably would not have to have duplicate services, but on the flip side that would mean job losses," Ms Drodskie said.

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