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Outsourcing Your Business Needs

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

“If you deprive yourself of outsourcing and your competitors do not,
you’re putting yourself out of business”
– Lee Kuan Yew

It is important, as a business owner, to be able to delegate and outsource.

It is often difficult to admit that you cannot do everything yourself, however, the secret to be a successful business owner, is not to persist in doing something that you are bad at, and mistake it for determination, but rather to re-focus on what you do best.

This may mean outsourcing the non-strategic functions in your business, or re-looking at your existing internal resources, which, with a little tweaking, may end up working better than you thought they would.
There is a growing trend to outsource certain functions to outside experts, and the benefits of doing so can be enormous. Given the effectiveness and reach of today’s desktop technology, it does seem to make more and more sense to do so.

The outsourcing process does take some time and effort to get right, and it would make sense to have a framework to benchmark yourself against:

  • Alignment: Is outsourcing the right move for your business?
  • Business case: have you taken all costs into consideration?
  • Culture: can you bridge the cultural difference between your business and the outsourced service provider? Outsourcing will involve building a working relationship with the outsourced service provider and allowing your in-house staff to adjust to the new processes.
  • Delivery: how will you define success?

It is important not to outsource operations that define the core mission of your business, and that are strategic functions. It may also not be a good idea to outsource projects that would involve team interaction or brainstorming. Self-contained tasks or projects are more suited to outsourcing.

It is also very important to remember that when you do outsource, you are outsourcing functions and not accountability. It is therefore important that responsibility is allocated to someone in your business – for follow up and liaison with the outsourced service provider.

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Department of Trade and Industry (DTI) Incentives and Grants

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

The DTI provides financial support to qualifying companies in various sectors of the economy. Financial support is offered for various economic activities, including manufacturing, business competitiveness, export development and market access, as well as foreign direct investment.

DTI Incentive Schemes include:

12I Tax Allowance Incentive (12I TAI): offers support for both capital investment and training for new industrial projects that utilise only new and unused manufacturing assets, as well as expansions or upgrades of existing industrial projects.

Automotive Investment Scheme (AIS): designed to grow and develop the automotive sector through investment in new and/ or replacement models and components.

People-carrier Automotive Investment Scheme (P-AIS): which provides a non-taxable cash grant of between 20% and 35% of the value of qualifying investment in productive assets.

Capital Projects Feasibility Programme (CPFP): a cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for S.A. capital goods and services.

Critical Infrastructure Programme (CIP): aims to leverage investment by supporting infrastructure that is deemed to be critical, thus lowering the cost of doing business and stimulating investment growth.

Export Marketing and Investment Assistance (EMIA): aims to develop the export market for South African product and services and encourages new foreign direct investment into the S.A. but partially compensate exporters for costs incurred in respect of activities aimed at developing export market.

Film Incentives: a package of incentives to promote the film production and post-production industry. These include:

  • Foreign Film and Television Production and Post-Production incentive.
  • South African Film and Television Production and Co-Production incentive.
  • The South African Emerging Black Filmmakers incentive.
  • Manufacturing Investment Programme (MIP): a reimbursable cash grant for local and foreign-owned manufactures who wish to establish a new production facility; expand an existing production facility; or upgrade an existing facility in the clothing and textiles sector.

Sector Specific Assistance Scheme (SSAS): a reimbursable cost-sharing incentive scheme whereby financial support is granted to organisations supporting the development of industry sectors and those contributing to the growth of South African exports.

If you think your business could be eligible for any of these incentives, please do not hesitate to contact us for professional advice in this regard.

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Reimbursive travel allowance

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

A reimbursive travel allowance is where an allowance or advance is based on the actual distance travelled for business purposes (that is excluding private use). Such an allowance is subject to a prescribed rate per kilometre of R3.61 per kilometre with effect from 1 March 2018. Historically this allowance was limited to 12 000 km per annum, whereas it is now unlimited subject to actual business kilometres travelled.

Some key points to note:

  • Where the reimbursive allowance does not exceed the prescribed rate per kilometre AND no other compensation is paid to the employee, the amount is not subject to employees’ tax, but the full amount must be reflected on the IRP5 certificate.
  • Where the reimbursive allowance does not exceed the prescribed rate per kilometre however other compensation is paid to the employee, the amount is not subject to employees’ tax, but the full amount must be reflected on the IRP5 certificate.
  • Where the reimbursive allowance exceeds the prescribed rate per kilometre (irrespective of the kilometres travelled), the full amount above the prescribed rate is subject to employees’ tax.
  • Where the reimbursive allowance exceeds the prescribed rate per kilometre (irrespective of the kilometres travelled) and other compensation was paid (travel allowance), the full amount above the prescribed rate is subject to employees’ tax.

Should you have any queries regarding reimbursive travel allowances please do not hesitate to contact us for professional advice.

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Land Rights – An international perspective

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

The land question is foremost on all South African minds, with debate raging across all spectrums. To put the land issue in perspective the following extract from the International Growth Centre policy brief on unlocking land rights for urban development highlights that the land issue is not unique to South Africa. Over above that a serious business case can be motivated for ensuring legally enforceable land rights.

“For cities to be productive and liveable places, urban land needs to be used efficiently and intensively. Well-functioning cities typically cluster firms and people together around productive central business districts and manufacturing centres that form the city’s employment engine. By contrast, many low-income cities are failing to use their land efficiently, instead growing outwards through sprawling self-built informal settlements.

Inefficient land use and insufficient investment, both in private properties and in public infrastructure, is often underpinned by weak land rights. In many cities, land is gridlocked in a web of competing ownership claims and overlapping tenure systems. This inhibits the private sector from either making substantial investments on land or transferring it to a more productive user. It also prevents governments from coordinating a virtuous cycle of infrastructure provision, co-ordinated land-use planning and land taxation to fund these investments.

Given the politically challenging nature of reforms to land tenure, inertia has been a common policy response across many developing cities. However as demonstrated by experiences from Rwanda to Thailand, decisive public policy, backed by strong political support, can prevent these patterns of low investment and inefficient land use.

Secure land rights encourage owners to invest in improving their properties. Legally enforceable land rights enable governments to tax and plan land use. Marketable land rights allow land to be transferred to its most productive use.”

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Tax Season 2018 For Individuals

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

The 2018 Tax Season for Individuals opened on 1 July 2018. Deadlines are as follows:

Channel Deadline Type of Taxpayer
Manual – post or at SARS Branch 21 September 2018 Non-provisional and provisional
eFiling or electronic filing at SARS Branch 31 October
2018
Non-provisional
eFiling 31 January
2019
Provisional

Who is a Provisional Taxpayer?

Any person who receives income (or to whom income accrues) other than a salary, is a provisional taxpayer. Most salary earners are therefore non-provisional taxpayers, if they have no other sources of income. It is important to note that receiving exempt income, as follows, does not make you a provisional taxpayer:

  • If you receive interest of less than R23 800 if you are under 65 or;
  • If you receive interest of less than R34 500 if you are 65 and older or;
  • You have income in a tax-free savings account.

Don’t file if you don’t need to

You do not need to submit a return if ALL the criteria below apply to you:

  • Your total employment income / salary for the year (March 2017 to February 2018) before tax (gross income) was not more than R350 000; and
  • You only received employment income / salary for the full year of assessment (March 2017 to February 2018) from one employer; and
  • You have no car allowance/company car/ travel allowance or other income (e.g. interest or rental income); and
  • You are not claiming tax related deductions/rebates (e.g. medical expenses, retirement annuity contributions other
  • than pension contributions made by your employer, travel).

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National Health Insurance (NHI) – Can We Afford it?

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

The recently gazetted NHI Bill has caused much debate. While it cannot be disputed that as a society we need to ensure that all have access to quality healthcare , it has to be done on a successful economic basis. Last year, the Davis Tax Committee commented as follows:

“The proposed NHI, in its current format, is unlikely to be sustainable unless there is sustained economic growth.”

With negative growth for the first quarter we certainly are nowhere near sustained economic growth – the launching of the NHI in its current format is probably premature. We will keep you informed on future developments.

Some key points:

  • NHI is a health financing system that pools funds to provide access to quality health services for all South Africans based on their health needs and irrespective of their socio-economic status.
  • It will need a massive reorganisation of the current health system, both public and private
  • This cannot be achieved without creating a single common fund, which in itself will directly contribute towards:
    • a unified health system by improving equity in financing,
    • reducing fragmentation in funding pools across both the public and private sectors, and
    • making health care delivery more affordable and accessible for the population

Transitional Arrangements

Phase 1 was from 2012 to 2017.

Phase 2 will be for a period of five years from 2017 to 2022 and will:

  1. continue with the implementation health system strengthening initiatives, including the alignment of human resources with that which will be required under the Fund;
  2. include the development of National Health Insurance legislation and amendments to other legislation;
  3. include the undertaking of Initiatives which are aimed at establishing institutions that will be the foundation for a fully functional Fund

Phase 3 will be for a period of four years from 2022 to 2026 and will include—

  1. the continuation of Health systems strengthening activities on an ongoing basis;
  2. the mobilisation of additional resources as approved by Cabinet; and
  3. the selective contracting of healthcare services from private providers.

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Fourth Industrial Revolution

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

Industry Ministers from BRICS countries recently signed a declaration on the implementation of the Digital Industrial Revolution (DIR). South Africa’s Trade and Industry Minister Rob Davies said he and his counterparts had discussed issues of skills development and capacity building for the fourth industrial revolution or DIR.

“We adopted a declaration. The gist of it is that we have been talking about partnerships within BRICS to prepare us all for the fourth industrial revolution and to ensure that the benefits of this are widely defused and they outweigh the risks and downsides” 

The Fourth Industrial Revolution is the fourth major industrial era since the initial industrial revolution of the 18th century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. It is marked by emerging technology breakthroughs in a number of fields, including robotics, artificial intelligence, blockchain, nanotechnology, quantum computing, biotechnology, The Internet of Things, 3D printing and autonomous vehicles. It is disrupting almost every industry in every country. The breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

The fourth wave of the industrial revolution is expected to see the heavy implementation of several emerging technologies with a high potential of disruptive effects. If are a key decision maker in your business, it is imperative that you build forward looking strategies into your business plan that deal with potential disruption to your existing business model.

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CIPC Launches Digital Financial Reporting Solution

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

The ease of doing business and particularly reducing the regulatory burden for businesses received a boost with the launch of Companies and Intellectual Property Commission (CIPC’s) Extensible Business Reporting Language (XBRL), a Digital Financial Reporting Solution at the Johannesburg Stock Exchange (JSE) in Sandton. The system will allow companies to file Annual Financial Statements using this mechanism and the data could be shared across the regulatory spectrum for multiple purposes. Speaking at the launch of the XBRL, the Minister of Trade and Industry, Dr Rob Davies said while there are many challenges with the Fourth Industrial Revolution, it does offer the possibilities of improving governance.

According to Davies, the Extensible Business Reporting Language (XBRL) will align the submission of annual financial statements with that of the global reporting standards for businesses. The programme will also mitigate the administrative burden on businesses when reporting financial information to government for regulatory compliance.

The Companies and Intellectual Property Commission (CIPC), Advocate Rory Voller said XBRL will assist companies with filing annual financial statements to egress from PDF reporting format, to a structured format.

“By using XBRL, companies and other producers of financial data and business reports can automate the processes of data collection. This will ultimately reduce the burden of multiple submissions by different regulators. We are satisfied with the results and believe the system offers users long-term benefits, especially if they integrate it with their back-end systems,” said Voller. Voller noted that XBRL reporting applies to about 100 000 qualifying entities in South Africa.

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Economy Contracts in First Quarter 2018

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

Shock figures from STATS SA reveal that our economy has shrunk by 2,2% in q1 2018. The following extract from Stats SA paints the picture:

After growing by 3,1% in the fourth quarter of 2017, the South Africa economy wobbled in the first quarter of 2018, shrinking by 2,2% quarter-on-quarter (seasonally adjusted and annualised). Agriculture, mining and manufacturing were the main contributors to the slowdown, with the electricity, construction and trade industries also recording negative growth.

The 2,2% fall is the largest quarter-on-quarter decline since the first quarter of 2009. In that quarter, the economy contracted by 6,1%.

After recording four consecutive quarters of robust growth in 2017, the agriculture industry lost ground in the first quarter of 2018, contracting by 24,2%, the largest quarter-on-quarter fall since the second quarter of 2006.

Agriculture’s relatively strong performance in 2017 is one of the positive factors that helped keep the economy afloat in 2017. This momentum failed to carry through to 2018, with decreased production in field crops and horticultural products contributing to the decline in the first quarter.

Mining entered into recession with its second consecutive quarter of economic decline. Production was down 9,9% in the first quarter of 2018, following on from a decrease of 4,4% in the fourth quarter of 2017. Lower production in gold, platinum group metals and iron ore were the main contributors to falling performance.

Manufacturing also failed to make a positive contribution to economic growth, falling by 6,4%. The decline was driven largely by a fall in production of petroleum and chemical products, as well as basic iron and steel.

The trade, construction and electricity industries also recorded negative growth in the first quarter of 2018 compared with the fourth quarter of 2017. Trade activity fell by 3,1%, on the back of weaker wholesale, retail and motor trade sales and lower activity in catering and accommodation.

The construction industry continued to contract, experiencing its fifth consecutive quarter of decline. The industry has lost R1,7 billion in value since the fourth quarter of 2016, falling from R110 billion to R108 billion in the first quarter of 2018 (constant 2010 prices, annualised).

Economic activity in transport, finance, personal services and government increased in the first quarter of 2018. The 1,8% rise in general government was mostly related to increased employment numbers in the public sector.
Commentators are hoping that the influence of Ramaphosa succeeding Zuma will work its way into the next quarter’s results.

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Reckless Trading

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

The recent Steinhoff and Gupta debacle’s have highlighted a number of issues, least of all Directors Liability and other governance issues. But was the company itself trading recklessly?

A company must not carry on its business recklessly, with gross negligence with intent to defraud any person or for any fraudulent purpose. If the Companies and Intellectual Property Commission(CIPC) has reasonable grounds to believe that a company is engaging in reckless conduct or is unable to pay its debts as they become due and payable in the normal course of business, it may issue a notice to the company, to show cause why the company should be permitted to continue carrying on its business, or to trade, as the case may be.

The company is required to provide information to CIPC within 20 business days of having received the notice. If the company fails to satisfy CIPC that it is not engaging in prohibited conduct or that it is able to pay its debts as they become due and payable in the normal course of business, CIPC

may issue a compliance notice to the company requiring it to cease carrying on its business or trading. The Commission could also accept the information and confirm the company’s right to continue carrying on business.

If a person to whom a compliance notice has been issued fails to comply with the notice, CIPC or the Executive Director (in the case of the Take-over Regulation Panel), as the case may be, may either:

Apply to a court for the imposition of an administrative fine, or

Refer the matter to the National Prosecuting Authority for prosecution as an offence in terms of section 214(3), but may not do both in respect of any particular compliance notice.

A director could still be subject to significant civil liabilities for any loss, damage or cost suffered by the company as a result of a contravention of section 22.

Directors have a duty to initiate voluntarily Business Rescue Proceedings where it seems the company will become insolvent, so as to avoid the serious consequences contemplated in this section.

At the end of the day it is the Directors of a company that are ultimately responsible for the companies’ affairs. If you are a director of a company and would like to know more about your roles and responsibilities, please do not hesitate to contact us for professional advice in this regard.

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