Our Blog

MEDIUM-TERM EXPENDITURE OUTLOOK

The following article is an excerpt from our November 2017 newsletter:

To offset revenue shortfalls and reduce borrowing, government has had to reduce its reserves. This leaves government with little room to maneuvre should risks to the expenditure ceiling materialise. Moreover, further reductions in the ceiling may be required to stabilise national debt. Various risks and pressures need to be taken into account over the medium term:

  • Additional spending commitments may emerge from policy processes underway. Government is evaluating the implications of providing fee-free higher education and training to poor and middle-income students. Other policy commitments include NHI, proposals in the Defence Review, improved early childhood development, accelerated land reform and several large infrastructure project proposals.
  • The inflation outlook has been revised down compared with the 2017 Budget, relieving pressure on inflation-linked expenditure such as the wage bill. However, public-sector remuneration budgets pose a large and imminent risk, with the possibility that some national and provincial departments will exceed compensation ceilings.
  • A new civil service wage agreement in which salary increases exceed CPI inflation, and without headcount reductions, would render the current expenditure limits difficult to achieve.
  • Several state-owned companies persistently demonstrate operational inefficiencies, poor procurement practices, weak corporate governance and failures to abide by fiduciary obligations.

Debt-service costs

At a time when revenue is under pressure, an increasing share of tax collection will be diverted to settle interest payments. As gross debt expands, debt service will remain the fastest-growing category of spending over the next three years. Relative to the 2017 Budget projections, debt-service costs will be R1 billion higher in 2017/18, R2.4 billion higher in 2018/19 and R6 billion higher in 2019/20. By 2020/21, government projects that nearly 15 per cent of main budget revenue will go toward servicing debt. This crowds out the space to fund social and economic priorities.

Interest payments as a share of main budget revenue

Source: National Treasury

Visit our Newsletters page for more useful information.

Read More

MEDICAL TAX CREDIT

The following article is an excerpt from our November 2017 newsletter:

To anchor a sustainable budget, structural increases in expenditure must be matched by structural increases in revenue. As stated in the 2015 MTBPS, the expenditure ceiling can be adjusted to accommodate new spending priorities when a permanent source of revenue is found to offset increased spending. For example, government is considering proposals to finance national health insurance (NHI) through adjustments to the medical tax credit as discussed  below.

In 2012, government moved from a system of deductions for medical aid contributions and qualifying expenses to a system of tax credits independent of taxable income. In 2014/15, 3 million taxpayers claimed the credit on behalf of 8 million medical scheme members, resulting in a tax expenditure of R18.5 billion. The incidence of these credits is spread across the income distribution: 56 per cent of the total credits claimed accrued to 1.9 million taxpayers who had a taxable income of less than R300 000. This includes many workers who belong to medical aid schemes.

Medical Tax Credit per income group

Source: National Treasury calculations, 2014/15

Medical tax credit as percentage of taxable income of taxpayers*

*Sample only includes taxpayers that claimed medical tax credits (Source: National Treasury calculations, 2014/15)

The 2017 Budget Speech stated that “consideration is being given to possible reductions in this subsidy in future, as part of the financing framework for national health insurance(NHI)”. The National Treasury is considering changes to the design, targeting and value of the medical tax credit as part of the policy development process for the 2018 Budget.

Tax data, however, indicates that the program is well-targeted to lower and middle-income taxpayers. The National Treasury will seek input from the Davis Tax Committee on the feasibility of proposals to adjust the medical tax credit to fund NHI. We should get further clarification in next year’s budget speech and will keep you informed of any updates in this regard.

Visit our Newsletters page for more useful information.

Read More

REVIEW: MEDIUM TERM BUDGET POLICY SPEECH

The following article is an excerpt from our November 2017 newsletter:

Overview

There was not much good news, with revenue shortfalls projected in 2017/18 to be R50 billion, R69 billion in 2018/19 and R89 billion in 2019/20. So, a collective shortfall over the next three years of over R200 billion, with limited detail on how to fund it. There is mention of the sale of state assets to fund the SAA bailouts etc. There appears to be no concrete plan of action besides the possible sale of some Telkom shares.

We appear to be stuck in a low growth trap, with limited vision for a way forward. There is immense political pressure to act in accordance with the wishes of key political figures and it appears that only a radical change in government leadership will result in the required growth and confidence in the economy that will enable radical economic transformation.

Tax measures

Carbon tax is firmly back on the agenda. In minister Gigaba’s speech he comments as follows:

“I am also happy to announce that Cabinet has approved the release of the carbon tax bill to Parliament for formal consideration and adoption.”

A revised draft bill will be published for public comment shortly. This probably will be early in 2018 with a view to implement 2nd half 2018.

Funding the current shortfalls in revenue is going to be in part via increased taxes.  For instance, the issue of funding the National Health Insurance via adjustments to the existing medical tax credits is still being mooted. The Davis Tax Committee is being consulted on this issue to assess the viability of such changes.  “Sugar Tax”  is under consideration in Parliament with a proposed implementation date of 1 April 2018.

There is no doubt that a lot hinges on the outcome of Decembers political deliberations. The budget in February 2018 promises to be extremely interesting!

Visit our Newsletters page for more useful information.

Read More

PRINCIPLES OF GOOD GOVERNANCE

The following article is an excerpt from our October 2017 newsletter:

There has been plenty written about poor governance in South Africa. Ranging from corrupt government officials to unethical behavior from reputable international service providers to the state. As Directors of companies, we need to be aware of our roles and responsibilities. We have prepared an extract from King 1V for your perusal. If you feel you need further information as relates to your roles from a governance perspective, please do not hesitate to contact us.

King IVTM Principles of Good Governance

The board of directors should:

  • Lead ethically and effectively
  • Govern ethics and establish an ethical culture
  • Ensure responsible corporate citizenship
  • Appreciate that the company’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable components of the value creation process
  • Ensure that reports allow stakeholders to make informed assessments about the organisation’s performance and its short, medium and long-term prospects
  • Serve as the focal point and custodian of corporate governance
  • Have the appropriate balance of knowledge, skills, experience, diversity, and independence
  • Delegate within the board to promote independent judgment, and assist with the balance of power and effective discharge of duties
  • Evaluate board’s performance and support continuous improvement and effectiveness
  • Appoint and delegate to management in a way that contributes to role clarity and the effective exercise of authority and responsibilities
  • Govern risk in line with strategic objectives
  • Govern information and technology in line with strategic objectives
  • Comply with applicable laws and adopted non-binding rules, codes, and standards
  • Remunerate fairly, responsibly and transparently
  • Use assurance services and functions to enable an effective control environment which supports the integrity of information
  • Adopt a stakeholder-inclusive approach
  • Practise responsible investment which promotes good governance and the creation of value (applies to institutional investor organisations)

Source: The King IV Report on Corporate Governance for South Africa 2016, Institute of Directors S.A. For more information, see http://www.iodsa.co.za/?page=AboutKingIV

Visit our Newsletters page for more useful information.

Read More

BLOCKCHAIN – THE TECHNOLOGY BEHIND THE DIGITAL ECONOMY

The following article is an excerpt from our October 2017 newsletter:

The digital economy is evolving rapidly. Initially, the internet allowed the business world to promote products and services globally at a push of the button. Next, online shopping started a huge shift in shopping patterns and allowed the smallest of companies to sell their wares globally online. The next big buzz is now cryptocurrencies with bitcoin being the big buzzword. In essence, cutting out the middlemen and gatekeepers like banks and central authorities. The technology behind cryptocurrencies is called blockchain and below is a basic overview on how this technology works:

“A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a link to a previous block, a timestamp and transaction data. By design, blockchains are inherently resistant to modification of data. A blockchain can serve as “an open, distributed ledger” that can record transactions between two parties efficiently and in a verifiable and permanent way. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which needs a collusion of the network majority.

The first distributed blockchain was conceptualized by an anonymous programmer or group of programmers, known as Satoshi Nakamoto, in 2008 and implemented the following year as a core component of the digital currency – bitcoin – where it serves as the public ledger for all transactions.  The invention of the blockchain for bitcoin made it the first digital currency to solve the double spending problem without the use of a trusted authority or central server.” 

There is no doubt that the blockchain technology is fast changing how we do business, not only for financial transactions but for storing data and facilitating all types of transactions. We will keep you updated with regular posts on the use of this technology.

Visit our Newsletters page for more useful information.

Read More

MEDIUM TERM BUDGET SPEECH LOOMS

The following article is an excerpt from our October 2017 newsletter:

Finance Minister Malusi Gigaba’s first budget speech looms against a backdrop of allegations of “state capture of treasury”.  A number of treasury officials have stated all is not well in the finance ministry. Rumours of a parallel administration bypassing the existing structures with little or no consultation before key decisions are being made. In addition, a move that is seen as unconstitutional, it was recently announced that the budget allocation process would be shifted from Treasury to the presidency to “ensure allocations were in line with the National Development Plan”.

There are also extensive rumours that Public Investment Corporation (PIC) funds were being utilised to fund State Owned Entities (SOE’s). Despite public assurances from Minister Gigaba that this was false, rumours persist that up to R100 billion is being requested to fund debt redemption commitments. The PIC does administer a fund, known as the Isibaya Fund, which invests in black economic empowerment and infrastructure development projects that help to create jobs, relieve poverty and transform the economy. It is possible that this fund could be utilised as a vehicle to fund SOE’s whilst still giving reasonable returns.

There will be tremendous interest on the 25th October when Minister Gigaba presents his first ever budget speech. With declining revenue collections, increased demands for education funding, housing, job creation, medical health insurance and a stagnant economy, Minister Gigaba needs to pull a few rabbits out of his hat. We will keep you informed of developments in this regard

Visit our Newsletters page for more useful information.

Read More

“PAY YOUR TAXES OR PAY THE PRICE”

The following article is an excerpt from our October 2017 newsletter:

SARS has announced an intensified drive to clamp down on non-compliant taxpayers by intensifying criminal proceedings. There has been a significant increase in non-compliance, resulting partly in SARS not meeting revenue collection targets.

It is a criminal offence not to submit tax returns and could result in substantial fines or even criminal prosecution leading to imprisonment.
The following non-compliance penalties could be charged:

Fixed amount penalties

Fixed rate penalties can be imposed by SARS for non–compliance with any procedural or administrative action or duty imposed or requested, for example:

  • Not registering when required to
  • Not informing SARS where there is a change in registration details
  • Not filing returns
  • Not retaining records as required by SARS

Percentage based penalties 

The percentage based penalty is imposed where SARS is satisfied that the taxpayer has not paid their tax as and when required under a Tax Act. This penalty is equal to a percentage of the outstanding tax.

Understatement penalties 

The understatement penalty is a percentage applied to the shortfall of the tax. It applies to all taxes and could be charged when there is a default in rendering a return, an omission from a return, an incorrect statement in a return and, if no return is required, the failure to pay the correct amount of tax. Excluded from the understatement penalties are penalties resulting from a “bona fide inadvertent error”.

There is no doubt that SARS will be looking at all options to increase revenue collection and non-compliance is an obvious route to go. If your tax affairs are not in order, please do not hesitate to contact us for professional assistance in this regard.

Visit our Newsletters page for more useful information.

Read More

CLOUD BASED ACCOUNTING SOFTWARE: AN OVERVIEW OF THE PROS AND CONS

The following article is an excerpt from our September 2017 newsletter:

PROS

  • Mobile cloud accounting – Access to your data anywhere in the world.
  • Cashflow – A ‘real-time’ view of your financial position which you can access at any time.
  • Team access and collaboration – Everyone in your team can access the same data at the same time, no matter where they are based.
  • Tracking – It’s easy to invoice and track inventory and you can schedule and make batch payments to suppliers.
  • Updates – For most cloud-based packages updates are automatic, giving less downtime.
  • Get paid faster –You can track when invoices have been opened or not, so non-payment of invoices can be actioned quicker.
  • Disaster recovery & fraud reduction – Your data is backed-up automatically in the cloud and in the event of any foreseen or unforeseen disasters.
  • Easily integrated – Easily integrated into your existing systems and in the most cases will improve your processes.
  • Fraud reduction – Automated processes increase the accuracy of financial reporting, giving more control over data and access to data.
  • Cloud accounting add-ons – There are hundreds of add-on apps for cloud accounting software which could potentially streamline more of your processes.
  • Informed decision making – With the financial information that will now be at your fingertips, you will be able to make more informed decisions regarding the performance of your business.

CONS

  • Internet access – You are dependent on the internet to access your accounting data.
  • Training – You will have to invest in some training for you and your staff.
  • Research – You will have to do some research to find the right package for you.
  • Monthly Packages – It’s worth noting that there is a tipping point between monthly cloud options. As your company grows, you will need to upgrade your package meaning a higher cost.
  • Additional costs – The more you download, the more your internet bill will amount to.
  • Cyber-attacks and data breaches – There have been some recent high-profile cyber-attacks and data breaches of large global businesses, which means that cloud accounting providers are not immune to such attacks.
  • It’s only as good as the information you put in – While many of the data input and collection functions can be automated, if this data is out of date or incorrectly posted, you may not be any better off than you are currently.

While there clearly are cons to moving to the cloud, it would appear the pros far outweigh the cons. By linking your cloud accounting to online shopping (depending on your product), you could easily make your products available globally.

If you are thinking of going online don’t hesitate to consult us for professional advice in this regard.

Visit our Newsletters page for more useful information.

Read More

AGRICULTURE AND FINANCE HELP LIFT SA OUT OF RECESSION

The following article is an excerpt from our September 2017 newsletter:

After two consecutive quarters of decline, the South African economy spluttered back to life in the second quarter of 2017. Positive contributions to higher economic activity across most industries – agriculture, finance, and mining – lifted the gross domestic product (GDP) by 2,5% quarter-on-quarter.

Agriculture continued to show strong recovery from South Africa’s recent drought, increasing production by 33,6%. The rise in the second quarter was mostly driven by a rise in the production of field crops, maize, and wheat, as well as increased production of horticulture products such as vegetables.

The 2,5% rise in GDP ends South Africa’s second recession since 1994. However, there are a few statistical points to note. Firstly, quarterly growth rates can be quite volatile. Secondly, the headline figure of 2,5% is the growth rate after annualisation, in other words, what the annual growth rate would be if the quarterly rate were to be repeated for four consecutive quarters. Thirdly, if we compare the first half of 2017 with the first half of 2016, the growth rate was 1,1%.

Although the headline figure is the most publicised in the media, the key lesson is that it should not be used in isolation. There are other GDP indicators that complement the headline figure and taken together they provide a more comprehensive picture of economic performance.

So even though 2,5% might seem like an impressive recovery, longer-term indicators show subdued growth. As a nation, the goal of achieving and sustaining higher rates of economic growth and development remains just as important as ever.

Visit our Newsletters page for more useful information.

Read More

TAX OMBUD’S REPORT ON THE INVESTIGATION INTO ALLEGED DELAYED PAYMENT OF REFUNDS AS A SYSTEMIC AND EMERGING ISSUE

The following article is an excerpt from our September 2017 newsletter:

The office of the Tax Ombud provides you with a fair and simple way to seek a resolution of a service, procedure or administrative dispute you have already unsuccessfully tried to resolve through SARS. The Office of the Tax Ombud is independent of SARS.

Taxpayers have, over the years, been complaining that SARS unduly delays the payment of verified refunds. The complaints reached their pick in the period December 2016 to March 2017. Taxpayers identified certain mechanisms allegedly employed by SARS, in the implementation of the tax collection system, to cause the delay. They argued that, in this respect, the tax collection system was being implemented unfairly by SARS. This resulted in financial hardships to them and, in some instances, the near collapse of their businesses; in others, loss of jobs ensued.

The Tax Ombud carried out an extensive review including obtaining inputs from most professional bodies in South Africa. From this review, it became clear that the system allows for SARS to unduly delay the payment of verified refunds to taxpayers in certain circumstances. This has become a systemic issue. The system does not sufficiently protect taxpayers. The removal of the obstacles discussed in the Report, as well as any others, would go a long way towards addressing the problem.

SARS in its response to the Ombud’s findings says:
“It is unfortunate that the Tax Ombud has arrived at the conclusion
that the obstacles are systemic in their nature, as they are the
exception rather than the rule.”

Let’s hope that SARS takes heed and that such practices as reported by the Ombud are discontinued and the process of refunds is administered in a just and equitable fashion. If you are experiencing any problems with refunds please do not hesitate to contact us for professional assistance in this regard.
Visit our Newsletters page for more useful information.

Read More
Page 1 of 1012345»...Last »