by LUKE ZUNGA
JOHANNESBURG, (CAJ News) – THE number of formal businesses must be 5% (five percent) of the population.
This simple equation is not found in textbooks but holds the pathway to solving the question of growth, unemployment and budget deficits, which inherently lead to high debt burden for the state, high interest rates and inflationary trending.
Unfortunately, there is talk of think-tanks. Where are they? What kind of people are the think-tanks for the government of South Africa, or, for Africa?
Who advises governments of the ultimate solutions? This new publication is bringing out think-tank material, that the state has to measure the level of formal businesses as the starting point.
Formal businesses have to be about 5% of the population, in terms of numbers, for an adequate tax base or for full employment and adequate growth.
Formal businesses have five attributes, namely, proper business conceptualization, the skills to execute the business, marketing strategy, adequate funding and structured administration, not a one man band.
These are tough to put together.
Turn to Europe and other developed countries for referencing, which think-tanks would do.
Country Population Formal Businesses Percentage
USA 333 million 31.5 million (2018) 9%
UK 68.2 million 6.8 million (2021) 10%
France 65.6 million 6.3 million (2021) 9%
Spain 47.4 million 4.4 million (2021) 9%
Germany 83.4 million 2.7 million (2021) 3%
Japan 126 million 5.2 million (2020) 4%
Totals 7,236 56,9 million 7.8%
Taking into account an appropriate level of scarcity, for people to appreciate the job, 5% is adequate.
This is simple arithmetic. If you have a jet with capacity to carry 300 passengers, it cannot carry 500 passengers.
The fact is the 200 passengers or 40% of the people, will not find space in the aircraft, as with employment, no matter how educated they are, or the transformation or broad-based black economic empowerment (BEE) pronouncements or how much politicians rebuke each other, or, contest elections.
These seats must be added.
The question is to understand the underlying capacity available. In South Africa, that data on formal businesses is not there.
However, page 11 of the Davis Tax Committee 2014 small and medium-sized enterprises (SMEs) Report alluded that the number of businesses which submitted tax returns in 2011 was 600,526.
Only formal businesses submit tax returns, and the number of their tax submissions are an indicator of the number of formal businesses.
In 2011 the population of South Africa was about 52 million. That means formal businesses were about 1.1% of the population, far too low.
The correct number should have been 2,6 million. South Africa was therefore 1,5 million formal businesses below the 5% level. This is the deficit of employers, who must be added.
Analysing the 600,526 further, the report added on the same page that 434, 684 or 72% of the companies which rendered tax returns declared no profit and therefore paid no taxes.
Only 165,852 companies (27% of 600,526) declared a profit, of which 64% of corporate taxes were paid by 481 companies only.
The corporate tax burden was borne by a few companies. There is a problem! There is a large reserve of companies which are not paying taxes.
In 2018, the South African Revenue Service (SARS)S Tax Highlight for 2018, reported that 780,480 companies had submitted tax returns, but only 196, 680 companies (25,2% of 780,480) reported profit and paid some taxes.
The rest, 583,799 companies paid no taxes. There are a large number of companies which paid no taxes because they made no profit.
The solution for budget support lies in the Department of Trade, Industry and Competition (DTIC) paying visits to these companies, exploring their problems to raise to profitability.
Another glaring indicator was that 363,703 companies (46,6% of 780,480) reported no taxable income. This means they were not operating.
It also means the number of active formal businesses in South Africa is only 416,777 (780,480 – 363,703). The tax base is very small at 0,07 of the population of 62 million.
How does South Africa address this puzzle? The direction currently pursued, as with other African countries, will not achieve much.
Increasing the number of formal businesses must seize the government’s attention to provide enough employment for blooming populations, produce enough products for exports, tap into the local intellect, generate the pace of growth that takes nations forward onto the road for holistic, inclusive participation, and generate more taxes.
This exercise cannot be left to chance. The South African Development Foundation submitted models on how to rapidly increase the number of formal businesses to government office, but nobody responded.
This is one of the weaknesses of the director-generals (DGs) or Permanent Secretaries system of government administration.
Most countries do not have a monitor or database of how many formal businesses are operating in the country.
The paucity of formal businesses is a major problem all over Africa. Travelling to some African countries visibly showed that there are not enough formal businesses in view.
The desperation in people’s eyes, the suffering of families, and the obliteration of their future are there to see.
Full arguments are found in the book, “What Economists are Missing – keeping you poorer”, found at Takealot.
– CAJ News