Dawie Roodt shatters misconception about small businesses in South Africa

Renowned economist Dawie Roodt said the romantic idea that small businesses significantly contribute to the South African economy is misguided.

Roodt is the Efficient Group’s founder, director, and chief economist. He won the prestigious Economist of the Year award and is one of the most referenced economists in South Africa.

He told Smart Money with Alishia Seckam that the South African government should cut spending, including eliminating frivolous departments.

He mentioned the Department of Small Business Development as one which can be cut without impacting South Africa.

Roodt explained that the widely held belief that small businesses form the cornerstone of the local economy is wrong.

“Small businesses hardly contribute to the economy. There is a romantic idea that small businesses are the backbone of the economy. That is untrue,” he said.

“Small businesses seldom survive. They are often in survival mode, and people work there because they cannot find work in the corporate sector.”

He added that small businesses do not pay significant taxes and are not large employers in South Africa.

“The actual contribution of small businesses to the South African economy is negligible,” Roodt said.

He highlighted that the main benefit of small businesses is that they can grow into medium-sized and large companies and contribute to the economy.

The government should create an environment for all businesses to thrive instead of focusing on the needs of small businesses.

“The government should not pander to the needs of small businesses and pump money into them. Instead, they should focus on making it easier for all businesses,” he said.

He said the emphasis in South Africa should move from developing small businesses to assisting all businesses.

0.1% of South African companies pay 72% of all company income tax

Roodt’s views align with the National Treasury and the South African Revenue Service’s (SARS) latest tax statistics for South Africa.

It shows that only 1,051 large companies in South Africa pay 72.3% of all company income tax in the country.

Companies with taxable income greater than R100 million constituted 0.1% of the total number but contributed 72.2% of taxable income.

There were 198,695 companies that made a profit of up to R1 million and paid R7.4 billion in company income tax.

Another 41,709 had a taxable income of R1 million to R100 million and paid R82.5 billion in tax. They accounted for 25.5% of all company income tax.

72.3% of company income tax was paid by companies with taxable incomes of more than R100 million, and 66.5% by large companies with taxable incomes of more than R200 million.

Almost 96.7% of all assessed companies with positive taxable income – from R1 to R10 million – paid only 11.3% of the tax assessed in 2022.

This illustrates the concentrated corporate sector of the South African economy and the importance of large companies in funding the country.

SOURCE:Dawie Roodt shatters misconception about small businesses in South Africa – Daily Investor