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2018 Medium Term Budget Policy Statement (MTBPS) Review

“I can promise my new colleagues in the National Treasury that
much more hard work lies ahead for all of us
in the interests of our country” 
TT Mboweni

The quote above from Tito Mboweni pretty much sums up the MTBPS. Since the last budget speech our economic forecasts have had to be revised given the technical recession. The key central challenges remain in raising economic growth and reducing unemployment.

Over the period ahead, government is focusing on reforms that support economic growth, reduce inflationary pressures and improve service delivery. Fiscal options have become increasingly limited, and higher revenues need to flow from a broad-based economic expansion.

Accordingly, this MTBPS prioritises three interlinked policy areas:

  • Implementing the President’s economic stimulus and recovery plan, particularly by encouraging private-sector investment.
  • Improving governance and financial management in national, provincial and local government departments to support service delivery.
  • Reforming state-owned companies. Improving the financial health of the major state-owned companies will take time, but measures are being taken to strengthen governance

Economic overview 

  • GDP growth has been revised from 1.5 to 0.7 per cent in 2018 following a recession in the first half of the year. The economic outlook is weaker than projected in the 2018 Budget, although GDP growth is expected to recover gradually to 2.3 per cent by 2021 as confidence grows and investment gathers pace.
  • The global economy is expected to continue growing at 3.7 per cent in 2018 and 2019. Global risks, however, are becoming more pronounced. Small and open developing economies, such as South Africa, are increasingly vulnerable to financial volatility and trade disruption.
  • Government’s economic stimulus and recovery plan is intended to support a return to higher growth over the medium term. A combination of policy certainty, growth-enabling economic reforms, improved governance, and partnerships with business and labour will be key to restoring confidence and investment. Infrastructure spending will also support economic activity and job creation.

Fiscal Policy

Government remains committed to sustainable public finances. Despite major spending pressures, the expenditure ceiling remains intact.
Gross debt is projected to stabilise at 59.6 per cent of GDP in 2023/24. Currency depreciation accounts for about 70 per cent of the upward revision to gross loan debt in the current year.
Tax revenue has been revised down by R27.4 billion in 2018/19, R24.7 billion in 2019/20 and R33 billion in 2020/21 relative to the 2018 Budget. This mainly reflects higher-than-expected VAT refunds.
The consolidated budget deficit is estimated at 4 per cent in 2018/19, compared with the 2018 Budget projection of 3.6 per cent of GDP. After rising to 4.2 per cent, the deficit stabilises at 4 per cent in the outer year.
Slow economic growth remains the primary risk to the framework. While some state-owned companies receive funding in the current year, their poor financial position could burden the public finances over the medium term.

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The 17 Sustainable Development Goals (SDGs)

The 17 Sustainable Development Goals (SDGs) of the 2030 Agenda for Sustainable Development were adopted by 193 world leaders in September 2015 at the United Nations General Assembly: “Transforming our World: the 2030 Agenda for Sustainable Development” [known as Agenda 2030]. They officially came into force on the 1 January 2016. South Africa is one of the member states of the United Nations.

The 2030 Agenda consists of four parts:

  • Vision and principles
  • Goals and Targets
  • Means of implementation
  • Follow up review mechanism

Vision and principles:

Countries that have committed to the 17 SDGs have until 2030 to achieve 3 overarching goals which underpin the Agenda. They are:

  • To end extreme poverty
  • To fight inequality and injustice
  • To fix climate change

The preamble of Agenda 2030 states that the 17 SDGs and 169 targets linked to the goals, seek to build on the 8 Millennium Development Goals (set down in 2000 at the Millennium Summit of the United Nations), and balance the three dimensions of sustainable development: the economic, social and environmental.

In its declaration, Agenda 2030 further states that all previous United Nations summits on the issue have laid the foundation for sustainable development and have “… helped to shape the new Agenda – which will be implemented for the full benefit of all for today’s and future generations …

Several the SDG’s are aligned to the broad principles of the National Development Plan. There is no doubt that we all need to familiarise ourselves with the principles behind these development goals, especially in South Africa if we are to succeed in rebuilding our economy on an equitable and sustainable basis

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Tax Season

The following article is an excerpt from our October 2018 newsletter.

Season closes on 31 October for non-provisional taxpayers and for those provisional taxpayers who opt to file at a branch.  Provisional taxpayers ordinarily have until 31 January 2019 to file on eFiling only.

To date, SARS is close to reaching the 3-million mark in tax return submissions for the current year of assessment. This is approximately a 4% increase compared to the same time last year. Of these returns, 51% have been submitted through eFiling.

Administrative penalties will be applied to late filing of tax returns and range from R200 to R5000. In accordance with the Tax Administration Act No. 28 of 2011 (TAA), and specifically Section 234 (d), it is a criminal offence not to submit a tax return for any of the tax types a taxpayer is registered for.

SARS has clamped down on outstanding tax returns to improve compliance, with 18 taxpayers prosecuted this year for not filing a return.  These taxpayers, who were publicly named, had ignored SARS’ reminders that they were due to file a return, and now possess a criminal record. Fines ranging from R2000 to R20 000, as well as admission of guilt fines were handed down by the courts, while some were imprisoned.

To ensure you comply with legislation do not hesitate to contact our offices for professional advice in this regard.

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Enhancements to The Income Tax Returns for Trusts (ITR12T)

The following article is an excerpt from our October 2018 newsletter:

On 17 September 2018, SARS implemented several changes to the Income Tax Return for Trusts (ITR12T) in respect of the year of assessment ending on 28 February 2018. If you saved or submitted your 2018 ITR12T prior to the implementation of the latest changes, none of the new fields will be presented for completion. The contents of the return are fully customisable, based on answers to certain questions presented to you for completion.

Some important changes to the ITR12T include:

  • The Trust Type will be pre-populated on the ITR12T. If the Trust Type is Special Trust Type A or B, validation questions will be presented for response, and based on the answers provided, the Trust Type may change;
  • Certain fields on the Income from Local Farming Operations (IT48) and Income from Local Partnership Farming Operations (IT48V) will be pre-populated, and certain fields will now auto-calculate;
  • The Income from Local Farming Operations (IT48) and Income from Local Partnership Farming Operations (IT48V) will now cater for negative currency to be captured;
  • The Trustee will be able to select one or both of the options Vested and Discretionary, if this is applicable to the Trust;
  • A new question pertaining to Imputed Income from Controlled Foreign Companies has been added to the ITR12T wizard. If this is applicable to the Trust, the ITR12T form will display a new container to be completed; and
  • The following fields have been added to the IT12T and ITA34T:
    • Reduction in Debts (s19).
    • Cash contributions to a Rehabilitation Trust Fund (s37A).
    • Amounts in respect of certain (tainted) intellectual property (s23I).

Supporting documentation and additional information

The following documents (at a minimum) are needed in order to complete the Income Tax Return for Trusts (ITR12T) on eFiling:

  • Financial statements and/or administration accounts
  • All certificates and documents relating to income and deductions
  • Proof of any tax credits claimed
  • Particulars of assets and liabilities
  • Details of persons/beneficiaries to whom income, capital and/or assets were distributed/vested.
  • Remember to keep all supporting documents for five years. SARS may request the documents if verification is required.

For professional assistance in completing your trust tax return do not hesitate to contact us.

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President Ramaphosa’s Economic Stimulus Package

The following article is an excerpt from our October 2018 newsletter:

President Ramaphosa recently announced measures to stimulate economic activity. While acknowledging the tough economic environment we are faced with, he appears very
clear on the direction we need to take in order to revitalise our economy albeit over a period of time. The desired outcomes were outlined as follows:

  • Ignite economic activity
  • Restore investor confidence
  • Prevent further job losses while creating new jobs
  • Address urgent challenges faced by vulnerable groups

Areas of economic activity that impact youth, women and small business will be prioritised, focussed mainly townships and rural areas. Key industries include inter alia:

  • Tourism
  • Telecommunications
  • Health
  • Agriculture

South Africa Infrastructure Fund

The stimulus and recovery plan prioritise infrastructure spending as a critical driver of economic activity. Infrastructure expansion and maintenance has the potential to create jobs on a large scale, attract investment and lay a foundation for sustainable economic expansion.

To this end a South Africa Infrastructure Fund will be set up, which will fundamentally transform governments approach to the rollout, building and implementation of infrastructure projects. In essence, the consolidation of infrastructure spend will ensure more efficient and effective use of resources.

As part of the reprioritisation of spending, additional infrastructure funding will be directed as follows:

  • provincial and national roads
  • human settlements
  • water infrastructure
  • schools
  • student accommodation
  • and public transport

We look forward to more detail and clarity in Minister Mboweni’s Medium Term Budget Policy Statement. South Africa needs a positive force to turn around its economic woes, and for government to achieve the difficult task of creating a more equitable and juts society. Our presidents call for South Africans to come together and forge a new path of growth, jobs and transformation needs to be heeded for South Africa to succeed. By the same token government needs to create an enabling environment.

Visit our Newsletters page for more useful information.

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Medium Term Budget Policy Statement (MTBPS)

The following article is an excerpt from our October 2018 newsletter:

Nhlanhla Nene is the first victim of the “State Capture Enquiry”. Just two weeks before presenting a critical MTBPS, he resigned after a massive public backlash regarding his initial non-disclosure regarding his meetings with the infamous Gupta family.

His replacement, Tito Mboweni, has been well received by the markets and public in general. It would appear that his appointment will be positive for South Africa’s economic recovery , and we look forward to his budget speech presentation on the 24th October . While it appears a short time for him to pre-pare, Treasury has a contingent of experts who have prepared the necessary budgets in line with government policy. Minister Mboweni should slot in with ease! 

Fast facts on Tito Mboweni

  • Born on 16 March 1959
  • Master of Arts degree in Development Economics
  • Minister of Labour from May 1994 to July 1998
  • Governor of SA Reserve Bank:  August 1999 to November 2009
  • International adviser of Goldman Sachs International 2010 to date
  • Various honorary professorships and doctorates from SA Universities

Minister Mboweni is clearly up for the challenge and we look forward to his maiden speech on the 24th October. Key issues that should be dealt with on the 24th should include inter alia:

  • President Ramophosa’s economic stimulus package
    • Reprioritising R400 Billion of existing budget
    • More detail on the spend and its impact on growth
  • National Health Insurance Funding
  • Education Funding
  • Implementation of Carbon Tax

We will review the MTBPS shortly after its delivery and inform you of any key issues.

Visit our Newsletters page for more useful information.

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Third Top Up Due 28th September

The following article is an excerpt from our September 2018 newsletter:

A voluntary provisional tax payment, often referred to as a “top-up” payment, can be made in respect of the third period of provisional tax. The payment is generally not determined through an estimation of taxable income but is instead based on actual taxable income for the year as this figure is often known to the provisional taxpayer when making the top-up payment.

No penalties are levied in respect of the third period. Interest will be levied at the prescribed rate from the effective date until the date of payment if the top-up payment is paid after the effective date.

Visit our Newsletters page for more useful information.

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How to Choose A Business Partner

The following article is an excerpt from our September 2018 newsletter:

When you are contemplating going into business with someone, either in the form of a joint venture, partnership or as co-owners of a business, there is no way to guarantee that it will work. However, there are some things you can do to try and prevent any problems down the line.

Here is a list of some of those things to look at when deciding:

  • Take your time – Rather delay the start-up of the venture until are ready
  • Don’t duplicate yourself – Your potential partner should have skills, strengths, and personality traits that compliment yours. Yes, definitely you should have a shared vision and values, however in terms of work flow, you might be a “creator” or a “star” (creative, people orientated, sales) and it would not be beneficial to have another “creator” or “star” on board. A mechanic (designing systems) or support person (strong in detail or administration), or even a trader (seeing opportunity) would better compliment the star or creator’s style
  • Be objective – Try to make your decision without any emotional ties or friendship. Have a set of criteria that you are looking for and objectively judge how that potential partner meets those criteria. Evaluate based on skills and personality, not emotional ties
  • He or she must be just as enthusiastic and driven as you are
  • Do background checks – References, criminal checks, past work experience
  • Assign roles and responsibilities and stick to them – Put these into a written agreement. Develop a clearly defined set of functions for each partner- each stick to what each one’s strengths are
  • Protect yourself legally – While trust and integrity are important, as is that “golden” handshake, it is still essential to put everything in writing. The agreement will cover issues you never even considered – that may become vital at a later stage. Set up a buy and sell agreement, backed up by life insurance

Equal input or contribution – Make sure your prospective partner has the means and resources to contribute equally to the business – either financially, in terms of sweat equity, or skills

Visit our Newsletters page for more useful information.

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Recession – Strategic Thinking, Planning & Action

The following article is an excerpt from our September 2018 newsletter:

Our previous article detailed the technical analysis of our current recession. We need to develop a strategic plan to assess the impact on our lives and businesses, and plan accordingly. Even if you don’t think the current recession will impact your business you still need to have a strategic plan.

The Characteristics of Thinking Strategically:

Opportunity:
What are the opportunities for your company to work more efficiently, serve its customers, or enter into new markets?

Problem solving:
How can you build solutions that serve the interests of the company as a whole? Where your business is failing, you may need to think strategically about how you can improve systems
and operations or find a solution to turn your business completely around.

Vision:
Can you imagine your ideal organisation and then figure out the practical steps for getting there?

The planning phase can be simplified by asking yourself three questions:

  • Where are we now?
  • Where are we going?
  • How will we get there?

A strategic plan presents the company and team members with a clear course of action that aligns with the organisation’s long-term vision. But don’t see the planning document as an end in itself.

Set specific action plans that lead to implementing your goals. It is important to eliminate non-critical actions. You need to implement measures to track progress, so that forward momentum is felt throughout the organisation.

As you start to put your ideas into practice, remember that strategic thinking is not something you do alone. Collaboration is essential for gaining other people’s perspectives on critical issues, as well as their buy-in for solutions. Further, by collaborating with your team members and employees, you build bridges between groups that will serve you well. And by engaging the creativity of your employees, you can boost both their satisfaction and performance. Accountability and high visibility are needed to help drive change. Each measure, goal, data source and initiative needs to have an owner.

Visit our Newsletters page for more useful information.

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Economy Shrinks By 0.7%

The following article is an excerpt from our September 2018 newsletter:

The South African economy slipped into recession during the second quarter of 2018, shrinking by 0,7% quarter-on-quarter.
This followed a revised 2,6% contraction in the first quarter of 2018.

The widely recognised indicator of recession is two (or more) consecutive quarters of negative growth. South Africa experienced its last recession during the 2008–2009 global financial crisis with three consecutive quarters of economic decline.

The 0,7% downturn in the second quarter of 2018 was a result of a fall-off in activity in the agriculture, transport, trade, government and manufacturing industries.

Agriculture production fell by 29,2% in the second quarter of 2018, following a 33,6% slump in the first quarter. This was largely driven by a decline in the production of field crops and horticultural products. Continued drought conditions in Western Cape and a severe hailstorm in Mpumalanga, resulting in extensive crop damage, also placed additional pressure on production in the second quarter.

The transport industry contracted by 4,9%, largely a result of decreased activity in both land and air transport. Industrial action within the industry, combined with a decline in freight transport, contributed to the slowdown.

The trade industry experienced its second consecutive quarter of negative growth, falling by 1,9%. Subdued sales in both motor and retail trade contributed to the decline. South African household consumption expenditure fell in the second quarter of 2018 compared with the first quarter of 2018, in line with the fall in retail trade sales. Households spent less on products such as transport, food, beverages and clothing.

Government activity decreased by 0,5%, largely because of falling employment numbers in the civil service.

Manufacturing was the third industry to record a second consecutive quarter of negative growth, following in the footsteps of agriculture and trade. Manufacturing activity fell by 0,3%, driven by a fall in the production of electrical machinery, transport equipment and products within the furniture and ‘other’ manufacturing division.

Mining, construction, electricity, finance and personal services experienced positive growth, but not enough to lift overall economic growth out of negative territory. Mining’s growth rate of 4,9% was largely spurred on by a rise in the production of platinum group metals, copper and nickel. Construction activity increased by 2,3%, driven by a rise in non-residential buildings and construction work activities.

The key question is what can we do about it? If you are concerned about trading conditions and a declining economy, feel free to contact us for professional advice in this regard.

Visit our Newsletters page for more useful information.

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