Government policy can seem a lot like Cape Town weather – all seasons in one day: Switched on with Chamber CEO, John Lawson

Government policy can seem a lot like Cape Town weather – all seasons in one day.

Just when you think the sun has come out in the form of a business-friendly initiative, along comes a howling black south-easter of ill-advised economic bungling.

To illustrate my point I’d like to reference two contrasting government initiatives. The first is a positive story, about a DTIC-funded Programme to bolster competitiveness and innovation in the aerospace industry. The CSIR-led Aerospace Industry Support Initiative was born out of DTIC’s emphasis on industrialization of technology and technology-based supplier development. Although the Programme is already 17 years old, it was recently expanded to cover marine manufacturing, and so far so good judging by some of the companies benefiting from Programme interventions.

That’s the sunny side of things.

The ominous weather brewing on the business front comes partly in the form of a SARS move to tax dormant and non-trading companies, a move which amounts to taxing an empty box – or charging a company for something it did not use.

So on the one hand government is reaching out a helping hand to key business sectors; on the other hand it is giving businesses a snotklap.

As a Chamber we believe the aforementioned SARS intervention is extremely shortsighted. Dormant companies are not trading and therefore not earning any income, let alone taxable income. How then can SARS justify administration penalties for non-activity, which amounts to taxation on zero income?

To add insult to injury SARS proposes backdating these administrative penalties to 2007. It is hard to escape the conclusion that this measure is a thinly-disguised effort to increase tax coffers. Or possibly there is no disguise at all.

As it currently stands the penalties under the tax regime would amount to hundreds of thousands of Rands and would have dire economic consequences, at a time when companies are absorbing the significant cost of doing business in the midst of an energy disaster.  

It would mean many businesses would have to pay more tax for the same income, adding a further stress at a time when a bit of tax relief might be more appropriate.

Lastly, the fact that SARS hasn’t utilised this penalty method up until now speaks volumes. They have largely ignored this in the past, but now want to implement it retrospectively at a time when Government should be focused on assisting the private sector, not creating more balance sheet headwind.  Had SARS issued penalties from the outset there would not be a cash crunch – the penalties would be small and those affected would have known to comply. However springing a tax surprise in this way is hardly business friendly.

We don’t expect rainbows from Government, but we do hope that, with a bit more common sense, the economic forecasts will start to look a little sunnier.

John Lawson
CEO
Cape Chamber of Commerce & Industry