I trust this finds you exceptionally well. The halfway mark for the year has been passed. The winter solstice is but a memory, days are (slowly) becoming longer again and before we all know it we’ll be taking the rest of the year off.
There are a number of rather pithy extracts which I feel summarise current events and their impacts most succinctly. To that end, I shall defer to these authors whilst pointing out once again that that South African(s) collectively seem to be doing everything possible to shoot themselves in both feet whilst cutting their noses off to spite their faces and scoring (yet another) own goals. The (wildcat) strike action (again, sigh) refers, the sanitation protests (with the Youtube video – it beggars belief), the consumptive (as opposed to infrastructural) overspending by the government departments, the revenue under-collection due to the tough trading conditions (company tax collections down 45% on budget for April and May – Business Times 9 July 2013 – that is a big number), and the increasingly strident ratings agency noise about poor fiscal discipline and practice which will lead to a downgrade (which is a vicious circle). Goodness me, those who cannot learn from history are doomed to repeat it. Further thereto, reading the below, there will be continued economic pressure for the medium term. To add a cherry to the top, given the government overspend, the first rumbles of tax increases have started. Those are tax increases proposed to cover expenditure, as opposed to doing the sensible thing and cutting down on wasteful/ fruitless/ fraudulent expenditure e.g. Nkandla/ Medupi – cost overruns are now twenty billion Rand (that is R20,000,000,000 – my goodness that is a lot of “noughts”)/ etc, etc, etc.
This extract from Cees Bruggemans refers [my comments in brackets]:
US GDP has been slowly ramping up, only to fall back and then try once more to bring us back to the ’90s [which means we have gone nowhere for fifteen years]. Stocks markets are volatile but seemingly moving higher in most of the developed world, except for Japan, where the current 20% drop comes hard on the heels of one of their frequent “end of the bear market forever” rallies of almost 90% – how many of those have we seen over the last 24 years? Europe is mostly in recession or Muddling Through with very slow growth. I continue to read from those who know China intimately that there is a real crisis brewing there. And over the last four weeks I have highlighted how desperate the situation is in Japan.
The main reasons (for poor South African growth) overseas in the rich countries (US, Europe, Japan) has to do with too much debt inviting debt deleveraging by households, increased regulatory burdens and more caution by overstretched banks in granting credit (causing a so-called credit crunch) and greater government austerity as they try to get their finances under control following a period of excesses and crisis control interventions. [Japan has committed to a currency war of hitherto undreamt of proportions and this, coupled with Japanese political and demographic pressure, is going reverberate around the world over the next few years].
For the duration, spending growth takes a backseat, not all employables get absorbed or new technical knowledge embedded in new investments. And confidence tanks, in turn reinforcing the foul mood, perpetuating a slow repair rather than making for a quick one.
Just ask China, whose overcapacity in nearly every sector is crying out for more global demand to take all this oversupply off its hands, allowing it to maintain growth momentum rather than slowing down [there is a big structural problem, the full extent of which will continue unfolding].
For SA it also translates into pedestrian export performance as foreign markets have reduced appetite for our offerings while our export prices suffer.
For those SMEs amongst us, the following “health-checks” are well worth performing to find out one’s official standing – which may be completely different to one’s reality.
This from Peter Carruthers:
These extracts list those things that South African SME business owners think are worth doing periodically, even if they are cumbersome. This is because they show us the hidden health of our business before it becomes a crisis (again, the official/ amptelik/ government reality may be different to the facts – and this happens with monotonous regularity).
For instance, applying for a Tax Clearance Certificate each year is a pain, especially if you do not need it right now. But, it is the easiest way to confirm SARS regards you as up to date. (Sure you can ask them if you are, as many have done, but you cannot trust their answer, as many have found out when they desperately needed the certificate.) It can takes weeks/ months to resolve the documents that SARS may have lost, or your payments that may have fallen into the wrong allocation, and when you urgently need the certificate to complete a tender that time is not available.
Next, try applying for some credit each year, like a credit card, even if you don’t need one. This instantly highlights whether somebody has snuck a judgment against you into the system. (Yes, they are supposed to warn you, but that warning seems to astray enough times for the rest of us to think it might be a conspiracy.)
Next, try checking your current business registration status each year at CIPC. (The Companies and Intellectual Property Commission. This used to be CIPRO, which still exists in hiding.) Recovering from de-registration is a little like trying to claim for a car accident that happens the day after your bank bounces your short-term premium. (I (as in Peter Carruthers) tried it, and it was a catastrophe.)
Next, review your BBBEE status each year. The law changes often enough to make this worthwhile. And your business keeps changing as well. Just being aware of your BBBEE rating means that you will see ways to improve it. This is like standing on a scale each morning. Just knowing what your weight is prompts you to eat a little more carefully.
Finally, some human touch to show what really is important from Dr. Jason Hsu, the chief investment officer of Research Affiliates. June 2012.
There is wisdom in the ancient prescription that happiness is not having what you want but wanting what you have. So love your parents, and love your friends’ parents, too. Love them for their wisdom; love them for their driving-you-mad-by-treating-you-like-a-five-year-old; love them for the free babysitting and house sitting; love them for their frailty, which teaches all of us some humility and humanity. They will live a good long time and lean heavily on us for support and, most of all, for love.
[Wow – if we all lived like this, we would all be happier and healthier and the world would be a better place].
CIPC continues their extremely successful efforts to frustrate and raise the barriers for entry to the South African economy. In May they were down for six days. Imagine yourself providing a service – where your customers and clients simply can’t get hold of you for six days of the month. This month the SMS received on June 26 was simply: CIPC is experiencing technical problems on the following systems: Registering of new companies, E lodgement website, unlocking of CoR39 passwords. We apologise for any inconvenience.”
Then on 29 June: As a result of the withdrawal of AR system (sic) and its review CIPC will only effect final de-registration at the end of September 2013.
So, let me get this right – your job is to register and deregister companies and attend to the ongoing administration thereof. This is accomplished (in terms of CIPC boldly changing their systems and moving into the 21st century). However you can’t register companies and attend to administration via the E-lodgement site because of technical problems. So, actually, then it would assume that you cannot really do anything. It beggars belief that any company/ institution, particularly one as critical as this could be this awful.
SARS, ah SARS. Quotient received a notice in May from SARS, that they were making a R30 adjustment to the VAT return submitted in October 2004 and Quotient now owes them R30 from October 2004. No reason, no explanation just a notification. Blood pressure explosion. Bastards!!!! Being an accountant we could hoik the records out of archiving and submit an objection. It cost many man-hours and thousands of Rands to have this sorted out but it needed to be done because it has tax clearance certificate implications. We deal with this kind of thing regularly for clients so I feel the pain because some unaccountable someone, somewhere, decides something or does something, which means that we have to stop our business and jump. The frustration is that one HAS TO RESPOND because it is SARS and they own and control our ability to operate in South Africa (not least of which is the tax clearance certificate and the pernicious penalties and interest which immediately apply). Suffice to say that at the cost of thousands and thousands of Rands and hours and hours of time that could have been far more productively better spent, it was verbally (not in writing) acknowledged that they had acted incorrectly and reversed the R30.
In addition, not content with wreaking havoc, SARS have made an absolute host of changes to tax returns – whereas for example they were content with the tax practitioner address as a contact address, they now want the taxpayer’s address. They want the taxpayer’s cell-phone details, and pretty much everything including a DNA sample and address of maternal grandmother in 1947. We have, as a practice, always kept this information well away from SARS’s clutching paws as due to (a) the sale of this data by SARS to direct marketers (yes, that is true), (b) the hazards of identity theft by SARS employees and (c) we have acted as the interface given our specialist knowledge. SARS really are becoming ever more invasive and the time investment for completing the returns is mounting significantly.
As has been previously mentioned, SARS have added a truly vicious and malevolent beast to their arsenal known as an IT14SD. This is a reconciliation which requires reconciliation between the payroll numbers on the financial statements to the payroll reports (IRP5s and EMP501s) and a reconciliation of the VAT inputs and outputs (to cost of sales). This is an incredibly labour intensive reconciliation which easily takes 40 man hours. It is a VERY VERY expensive and time-consuming submission (and seeing as SARS developed this without informing the software providers, as of March 2013, there still isn’t, to my knowledge, a software provider in South Africa that has set up their software to generate the inputs/ reports in the format required). I asked the question at the annual Southern Suburbs SAICA/ SARS meeting, last year, if we could not submit the document and rather invite SARS to audit. We are also finding that, quite literally, one in three tax returns are going for review or audit. It is absolutely ludicrous! Basically if one is receiving a refund or has ANYTHING other than a plain vanilla type of the tax return the documents are required to be submitted. It is chewing up time and costing money that is unnecessarily spent due to poor risk profiling. It is making us change the way that we approach tax on an annual basis, as instead of aiming for a small refund, we are aiming to have to rather pay in and hopefully avoid the time and costs associated with an audit. Having said that, even then, where clients are having to pay in, we are finding a disproportionate amount of document requests/ audits. It really is a lose/ lose situation.
SARS are also focusing on Value-Added tax in the worst way possible. What they are doing is denying VAT claims where a valid VAT invoice has not been issued (which actually sounds quite reasonable, until the implications are noted). This means that if the VAT number is wrong/ missing, the addressee is wrong/ missing, the address and or contact details are wrong/ missing then the VAT claim is denied. The worst example we have been made aware of (fortunately not a client of ours and we were in no way associated with it) was as follows: ACo issued BCo with a VAT invoice for R10m plus R1.4m VAT. BCo paid ACo the R11.4m. ACo recorded the output sale and paid SARS the R1.4m VAT. BCo recorded the input and claimed the R1.4m VAT. ACo’s invoice to BCo was incomplete so SARS, having actually received the R1.4m from ACo denied BCo the input and for the brazen effrontery of the BCo for daring to submit an incomplete invoice denied the R1.4m paid and issued a fifty percent penalty as well. Net effect is moving from a R1.4m refund to a R700k payment to SARS (that is a R2.1m smack in the crotch for what was really an administrative error at a clerical level). It is enough, given the incompetence at all levels of government, the ineptitude and complete ignorance about realities of business life in South Africa, to make one go and work for government. Arrive late, long lunch, leave early, get a big bonus, have a burning/ breaking festival once a year whilst striking for higher wages.
According to a missive from Moonstone (FSB compliance), there is a new SARS requirement in that your home loan balance and interest charged will be submitted to SARS from Feb ’13. This means that if one is declaring income of say R2.0m per year but has a residence costing (say) R250m then if you aren’t a really important government official who has friends leaving on a jet plane, SARS will investigate the mismatch.
In yet another diatribe, SARS have changed the format of the company and close corporation tax returns. In their usual oblivious to reality fashion, this was unilaterally implemented, with one week’s notice, on 3 May. The tax returns are now far more detailed than last year, and multiple source documents and financial statements are required to be submitted, so we have now reversed out of the digital age back to where we were in 2007.
Finally, with regards to SARS, they have now taken a position whereby interest free loan accounts between related parties are now the subject of scrutiny. This aspect of the legislation has been largely ignored by them but they are now taking the position that where a debit loan account exists e.g. a director has been loaned (say) R500,000 interest free by the company that this transaction is now a deemed dividend and STC or dividends tax is payable. It is thus vitally important that debit loan accounts are no longer run by related parties to entities.
Whew, that was a lot about SARS. All true. None of it good. The facts, I only give you the facts.
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