The Ministry of Finance notes that a presumptive tax for SMEs based on turnover will help simplify processes and remove the requirement of audited financials for payment of tax, which is a major stumbling block for small businesses. Business Eswatini, however, feels the qualification criterion of E500 000 turnover is too low, as businesses making E1 million turnover can still be considered small.

Photo Credit:

By Avite Mbabazi

The introduction of a presumptive tax based on turnover as proposed in the Income Tax Amendment Bill 2022 to benefit SMEs, the Eswatini Revenue Service (ERS) and the government is one of the mechanisms that could satisfy all the parties involved.

A presumptive tax is a tax liability of a taxpayer based on certain assumptions. Presumptive tax, also known as the small taxpayer regime, aims to increase tax revenue by motivating ‘small’ taxpayers to comply with tax regulations. In neighboring South Africa a form of presumptive tax, turnover tax, is worked out by applying a tax rate to the taxable turnover of a micro business with an annual turnover of R1 million or less.

The tax regime has its origins in present-day Italy where land values were used to estimate tax instead of actual production from the land. Then it was found that taxpayers fought to maximize their production and that they were much more likely to pay their taxes than when they were taxed on their production income.

In Eswatini, it has been long acknowledged that a small taxpayer regime was long overdue in order to improve tax compliance and increase tax revenue. The ERS whose vision is “100% voluntary compliance for a better Kingdom of Eswatini” indicated in their 2019-20 Strategic Risks summary that one of the risks they faced was the failure to meet domestic revenue targets. ERS then stated that it had initiated a project in preparation for implementing presumptive tax as a treatment plan.

For SMEs in the country, a presumptive tax would bring several advantages including a significant reduction in auditing costs. In fact, in the budget speech delivered by the Minister of Finance, Neal Rijkenberg in February this year, he noted that the government would be introducing a presumptive tax for SMEs to simplify processes and remove the requirement of audited financials for payment of tax.

Given its advantages, however, the success of a small taxpayer’s regime largely depends on its implementation. In their presentation to the Senate Finance Portfolio Committee last week on the 25th of August 2022, Business Eswatini (BE) contended that the E500 000 turnover qualification criterion suggested was too low.

BE instead proposed that the threshold should be increased in order to truly accommodate all small and medium enterprises in the country. “What happens when a business makes a turnover of say E500, 000, but ends up incurring a loss and not profits? Moreover, the definition must be aligned to the MSME policy to avoid multiple definitions for what is considered to be a small business” asks BE.

Share With Friends