Business Licensing Bill

Eythan Morris | May 09, 2013
This Brief summarises some of the aspects of the Business Licensing Bill and considers what it could mean for business. It showcases State and Private Sector views on the Bill and concludes with some comments from the HSF

What is the Business Licensing Bill (‘Bill’)?

The Bill is a draft law stemming from the Department of Trade and Industry (DTI). It aims to achieve a registry of all businesses operating within the country in both the formal and informal sectors. This will be accomplished by the businesses having to register with, and obtain a licence from, their local municipality. This Bill replaces the Business Act of 1991 which required businesses that served food, operated health facilities such as massage parlours, or entertainment venues, to be licensed with local authorities.

Within the planned legislation:

  • the new business licences will be valid for five years before having to be renewed via what is said to be “a simple process”;
  • it confers on a number of institutions the authority to examine businesses and their licences;
  • inspectors will be able to fine a business or confiscate goods if the operators are found to contravene the Bill or other laws such as selling pirated goods.
  • licensing authorities have to issue business licences within 30 days of the application;
  • authorities could extend this period by 14 days under certain circumstances.
  • an operator must produce its licence on demand to an inspector or face a fine. (1)

The Bill intends to provide an uncomplicated, facilitative framework for the licensing application procedures by providing set norms and standards. Another endeavour is to promote competent governance and support.

Objections

The Mises Institute of South Africa has sent a formal objection to the DTI on the Business Licensing Bill. Some submissions made to the DTI include:

  • the use of the Constitution to justify the Bill is invalid as it does not authorise the State to require peaceful individuals to have permission to engage in voluntary exchange in any clause;
  • the claim that the power of inspectors may lead to an increase in corrupt practices as there are no regulations on this power given to inspectors.  (2)

“Nothing, absolutely nothing, will escape the clutches of the bureaucracy which the Bill will require. The country will be deluged by wall-to-wall apartheid-style bureaucrats, who will control everyone who supplies anything” Leon Louw (3)

Section 25 of the Bill seems to validate this view as hawkers could face an astonishing punishment for doing business. If one is found guilty of the offence, which is trading without a licence, one would be liable to a fine of an unspecified amount or imprisonment for up to 10 years or both. In accordance with section 42 any number of onerous requirements could be added under the authority of this blanket provision and the justification for this Bill. (3)

State reaction

According to Lionel October, Director General of the DTI, the Bill will merely extend and standardise the issuing of licences. This process already exists but is not being implemented uniformly. It is claimed that the process of registration would be simple, fast and cheap:

"As soon as people hear regulation, they automatically think that socialism is coming in. It is a complete overreaction. Every successful economy has a set of well-managed, simple regulations." (4)

Advantages of this Bill according to October are:

  • by registering, informal sector traders would also be able to get onto a database which would allow them to gain access to government support programmes;
  • that registration of informal businesses would help the Department to target support at such businesses;
  • the Bill would also help the government to crack down on traders selling items such as pirated DVDs;
  • that businesses such as bars, taverns or restaurants already in possession of the necessary licence needed to operate, would be exempt;
  • that the granting of licences will ensure greater security to operate a business: He gave the example of a shebeen operator who doesn’t have a liquor licence and who could therefore easily be closed down or harassed by the police or officials tasked with enforcement. With a licence, a shebeen operator is able to upgrade and expand their operations.  (4)

Private sector reaction

Business Unity SA (BUSA) believes that there is merit in what to the Bill seeks to achieve with regard to promoting an environment conducive to business expansion and ensuring compliance. However, they also consider it as yet another piece of legislation that overwhelms small businesses with yet another piece of legislation to comply with in an already extensive regulatory framework.

BUSA believes that the current draft of the Bill will unintentionally impede the growth and development of small and medium enterprises (SMEs) and further harm a sector with an already high business failure rate. This is also worrying considering that most economists see SMEs as being the engines of growth in developing economies.  The Bill contradicts the National Development Plan (NDP), which sees 90 percent of all jobs by 2030 derived from the small enterprises sector.

Areas of concern to business are:

  • the compliance burden is too onerous, diverting time and resources away from the core business of companies;
  • the Bill will spur on illegal business activity as operators seek to avoid complying with the Bill, which can lead to increased bribery and corruption;
  • this Bill will heighten the risk profile of businesses, which already have to contend with challenges of access to finance;
  • the accumulation of regulatory requirements raises costs of doing business;
  • the Bill will impose an increased administrative burden on the authorities, who already lack capacity;
  • the Bill does not give clarity of application to businesses with a national footprint;
  • the Bill speaks of an automatic revocation of a licence, if non-compliance is found, and a business owner can only appeal once the business has been closed. This does not provide a fair process for a business to plead its case before the licence is revoked. This appears to be an unjust administrative action that undermines the provisions of section 33 of the Constitution. (5)

HSF Comments

The requirement of a license to trade would increase the tax revenue that the country gains as those businesses would be taxed which would lead to an improved fiscus.

However, the draft licensing legislation should be subjected to a regulatory impact assessment analysis so that all the consequences, intentional and unintentional are considered with regard to this Bill.

The power given to inspectors should be regulated so that possible instances of abuse of that power can be minimal.
Additionally, we need to align more economic and business policies with the ideas and goals of the NDP as well as to purposely cultivate SMEs, instead of creating more paperwork that could overpower them.

References
(1) Business Licensing Bill 2013
(2) http://www.mises.co.za/2013/04/objections-to-the-licensing-of-business-bill-of-march-2013/
(3) http://www.polity.org.za/article/the-licensing-of-business-bill-the-government-must-come-clean-2013-05-07
 (4) http://www.sanews.gov.za/south-africa/bill-standardise-business-licences-%E2%80%93-october
(5) http://www.busa.org.za/docs/BusinessDraftBill

Eythan Morris – eythan@hsf.org.za
Intern
Helen Suzman Foundation

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