'Advanced value added tax payment hurts small biz'

The government could relieve the pressure on small and medium-sized businesses by reforming how VAT is collected.

By DANIEL KENNEMER
April 26, 2006 07:50
1 minute read.
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Some 70 percent of small business owners claim paying VAT before receiving actual payment from clients makes running their establishments more difficult and increases uncertainty, the Small Businesses Authority said Tuesday. The situation, the group added, hinders the sector's development and survival. Nearly one-third of businesses responding to the authority's survey said that the timing of VAT payments hurts them "very much." Small businesses must spend up to one-fifth of their sales volume in order to meet legal taxation requirements, the organization said, stressing that "this cost ... is approximately twice [the proportion] paid by medium-sized businesses and twenty times that of large businesses." "A business with NIS 2.5 million in revenue is likely to pay up to NIS 2,400 yearly, just to fund the days between the VAT payment deadline and the date the business receives payment from its clients. A business whose revenues total NIS 5m. will pay up to NIS 4,100 per year," said authority spokeswoman Gali Gabbai. Lilach Nehemia, deputy secretary-general of the Small Business Authority, meanwhile, noted that "the smaller the business is, the higher the amounts it is required to spend in relation to its volume, in order to meet the criteria of complying with the tax laws, which hinders business operations." The government could relieve the pressure on small and medium-sized businesses by reforming how VAT is collected, such as allowing yearly statements or postponed payment, Nehemia suggested. "This would allow small business owners to use the money to leverage the business instead of leaving it lying in the state coffers," she said. Nearly 5% of the small businesses surveyed wait more than 120 days for clients to pay them after issuing an invoice; 4% wait about 120 days; 13.7% wait about 90 days; 17.6% wait 60 days; and 13.4% wait about 30 days. Israel Craftsmen Association President Yehuda Alhadef said that, among the small businesses his organization represents, a business with a roughly NIS 1m. in sales volume will pay about NIS 16,000 each year to fund credit to make VAT payments before receiving money from clients.

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