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The significance of small businesses to any economy, whether developed or developing, cannot be underestimated. Even some of the advanced economies of this world such as China, Germany, and Japan, laud the contribution of small businesses to the development of their economies (Frimpong 2013: par 4; Welsh, Munoz, Deng and Raven 2013: 30). Welsh et al, in particular, argue that small businesses are very important to the Chinese economy, while Frimpong points out that SMEs are the drivers of industrial development in Asia and the developing African economies. Chimucheka (2013a: 157) concurs with Frimpong and he argues that small businesses are the driving force in economic growth on a global scale and that they contribute to making economies wealthier.

The SARB (2015: 1) firmly believes that small businesses are crucial in a thriving economy as they play an integral part in the renewal process that defines a market economy and contributes to innovation technology advancement and growth in production. In addition, the SARB (2015: 1) argues that small businesses are seen as a conduit through which multitudes of people enter the mainstream economy, creating opportunities for women and minority groups. It is estimated that small

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businesses contribute 42 per cent to South Africa’s GDP and 60 per cent to employment (Rungani and Potgieter 2018: 2).

Small businesses are the engine of the modern economy. According to Robu (2013: 86), small businesses are considered the backbone of any country both within borders and internationally, as they represent an essential source of economic growth, dynamism, and flexibility in advanced and developing economies. The views put forward by Robu (2013: 86) are in agreement with the opinions of Frimpong (2013: par 8) who identifies that small businesses in Ghana contribute 70 per cent to the GDP and 92 per cent of the country’s overall businesses, while 70 per cent of Nigeria’s manufacturing sector is also made up of SMEs. Robu (2013: 86) adds that Small businesses bring new products and techniques into the market as well as bringing competitiveness within an economy and against other economies.

It could be argued that small businesses represent a nursery bed for large multinational corporations and carry the seeds of innovation and invention. Savlovschi and Robu (2011: 278) argue that from small businesses, large corporates emerge, while for individuals in the entrepreneurial world, SMEs represent the first step towards entrepreneurship. In addition, in the macro economy, small businesses are seen as the launchers of new innovative ideas. Although, on this note, the Bureau for Economic Research (BER) (2016: 8) identified that innovation among South Africa’s small businesses is lower than when compared to elsewhere in developed countries and they attribute this to the lack of sufficient upward linkages with larger corporates. They argue that the lack of such strong linkages stifles technology diffusion opportunities among entities.

Small businesses are a huge source of employment as highlighted in several research studies. According to Abor and Quartey (2010: 218) and Welsh et al (2013: 30), small businesses are efficient job creators. To Savlovschi and Robu (2011: 278), Small businesses are a source of employment and have marked the beginning of many people’s careers. Chimucheka (2013b: 784), the BER (2016: 5), and SARB (2015: 5) concur with Savlovschi and Robu (2011: 278) and point out that small

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businesses constitute an important source of jobs and contribute to the reduction of unemployment.

The government of South Africa has taken note of how important small businesses are in the economy by establishing the Small Business Development Ministry in 2014 to facilitate the promotion and development of small businesses (BER 2016: 5). South Africa is struggling with a 26.7 per cent national unemployment rate (National Treasury 2018: 7). Therefore, supporting and promoting the development of small business is among the main options available to the government of South Africa in an effort to creating more employment opportunities. With South Africa’s GDP growth in 2014 and 2015 estimated at a disappointing 1.5 per cent (SARB 2015: 2), the government has indeed put more emphasis on supporting the development of SMEs to boost the national output.

The significance of small businesses to both developing and developed economies cannot be underestimated. South Africa, like any other African, South American, and some Asian countries, is still a developing economy and it has identified small businesses as one of the key drivers of economic development (BER 2016: 5). However, for small businesses to flourish and drive economic development, the government and other key stakeholders have to create an enabling economic environment. Robu (2013: 86) argues that the level of development of an economy depends heavily on its capacity to provide a suitable environment for small businessesto flourish and supply first class services as well as low-cost products.

It is against this background that, from a taxation perspective, this study chose to launch an inquisition into the support given to South Africa’s small businesses. The support, in this case, is in the form of tax incentives offered by SARS. The small business tax incentives from the government of South Africa are meant to create an enabling environment (in as far as tax is concerned) for SMEs to flourish and in turn, foster economic development. The tax incentives for small businesses in South Africa are linked to the way in which the particular entities are treated for tax purposes. For this reason, the study deemed it of critical importance to look into the manner in which the different forms of small businesses are taxed in South Africa.

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