Media Release
12 March 2025
Finance Minister Enoch Godongwana must abandon plans for a VAT increase when he delivers the 2025 Budget Speech tomorrow, South Africa’s leading SME incubator warns, saying higher taxes will cripple SMEs, weaken consumer spending, and stall economic recovery.
Shawn Theunissen, Founder of Property Point and eTTP, said that the increase would hit SMEs hardest, particularly those operating on thin profit margins, serving lower-income consumers, or reliant on discretionary spending.
The proposal to increase VAT from 15% to 17% was a key reason behind last month’s postponement of the Budget Speech, after divisions within the Government of National Unity (GNU) over its economic impact. While Treasury is searching for ways to boost revenue, SME development organisations argue that raising VAT is the wrong solution for an already struggling economy.
“A VAT hike will drive up costs for small businesses, forcing them to increase prices and make it even harder to compete in an economy where consumer confidence is already low. Instead of making it easier for SMEs to grow, we’re seeing policies that will squeeze them out of the market,” Theunissen said.
The VAT increase follows a three-year trend of tax policy uncertainty, where previous Budgets failed to provide meaningful tax relief for SMEs. In 2022, Treasury announced a gradual reduction in corporate tax rates, but small businesses saw little direct benefit. In 2023, discussions around VAT exemptions for SME inputs failed to materialize, despite the government acknowledging rising costs as a barrier to SME growth.
“Each year, we hear about Government’s commitment to supporting SMEs, but tax policies continue to add pressure rather than ease it. Instead of relief, we’re seeing additional burdens that make it harder for small businesses to survive,” Theunissen said.
Treasury has been exploring tax increases as a way to cover rising debt servicing costs, which now consume over 22% of total government spending. But Theunissen said the approach risks doing more harm than good, particularly for businesses that have yet to recover from the effects of load shedding, rising inflation, and slow economic growth.
“If Government is serious about supporting SMEs, it should be introducing tax relief measures – such as VAT exemptions on essential business inputs or lower corporate tax rates for small businesses – not increasing the financial burden on entrepreneurs who are already struggling to stay afloat,” he said.
Funding Bottlenecks and Slow SME Support
Beyond the VAT debate, SMEs are also grappling with delays in government support initiatives and growing frustration over access to funding.
This follows a pattern of delayed SME funding initiatives over the last three budget cycles. In 2022, the Small Enterprise Finance Agency (SEFA) was tasked with expanding SME lending but faced administrative challenges in rolling out loans to high-potential businesses. In 2023, Treasury pledged to improve SME access to finance through blended funding models, yet businesses report that the disbursement process remains slow and unclear.
“It’s one thing to announce funding programmes, but if small businesses can’t access them efficiently, they don’t serve their purpose. We need an overhaul of the funding disbursement process to ensure that SMEs, especially those in townships and informal sectors, actually benefit,” said Theunissen.
Concerns are also mounting over the slow payment cycle for SMEs supplying goods and services to government departments.
Despite the Public Procurement Act (2024) aiming to ensure 40% of state contracts go to SMEs, many businesses struggle to receive payments on time, with some waiting months for invoices to be processed.
This is not a new issue. In 2022, Treasury acknowledged the need for better enforcement of the 30-day payment rule, yet delays persisted. In 2023, discussions around a centralized digital payment tracking system for SMEs supplying government departments failed to gain traction.
“Winning a government contract means nothing if SMEs don’t get paid on time. Late payments create cash flow crises that can force businesses to shut down. If this Budget is serious about economic inclusion, we need a legally binding 30-day payment rule for SMEs,” Theunissen said.
Beyond funding delays and tax uncertainty, SMEs are still being squeezed by unreliable energy supply and lack of inclusion in infrastructure projects.
The Just Energy Transition Investment Plan remains underfunded, making it difficult for small businesses to transition to affordable renewable energy solutions. Load shedding continues to disrupt operations, and businesses are paying a premium for diesel and alternative power sources.
Government has repeatedly pledged support for SME access to renewable energy, but the results have been underwhelming. In 2022, Treasury introduced incentives for SMEs investing in solar power, yet funding for these programmes was inconsistent. In 2023, the focus shifted to private sector-driven energy investment, leaving many SMEs without direct support to mitigate rising electricity costs.
Meanwhile, Government’s R900 billion infrastructure investment plan, which could unlock major opportunities for SMEs, remains largely inaccessible to smaller contractors.
“We hear big infrastructure spending figures every year, but how much of that reaches SMEs? If we want to transform the economy, then small businesses must be at the centre of procurement and supply chain opportunities,” Theunissen said.
ENDS (835 words)
For media opportunities please contact Anneke Burns at anneke@gravitas.africa or on 0714230079.
About Shawn Theunissen
Shawn Theunissen is a South African social entrepreneur dedicated to economic inclusion and SME empowerment across Africa. As the Founder of Property Point, he has driven over R1.58 billion in market opportunities for 168 SMEs, creating more than 2,244 jobs. He also founded Entrepreneurship To The Point (eTTP) to support SMEs in emerging markets. Recognised internationally. With expertise in enterprise development, market linkages, and business support, Shawn remains a leading voice in SME growth and social impact.