I trust this finds you exceptionally well as we approach the half-way mark through the year.
I trust this finds you exceptionally well as we approach the half-way mark through the year. The first snows have dusted the mountains in the Western Cape (if you were in Sutherland, it was more than a dusting and you enjoyed your longer than planned for stay) and we are swift approaching the solstice (after which the year turns and the days start getting longer). If anything, this month has flown by faster than last month which flew by faster than the prior month…
In terms of the South African macro-economic situation, we seem to be shooting ourselves in both feet whilst simultaneously scoring multiple own goals and cutting our nose off to spite our face. In an ivory tower somewhere, the so-called leadership fiddles as Rome is burning. To have Gill Marcus stepping forward and using (exceptionally “un-central-banker”) phraseology such as “South Africa is in crisis”, “Government must lead” (implying that they are not) and “the issues being faced are structural and cannot be solved by monetary policy” (implying stop making your ham-handed balls-up my problem) is, quite frankly, a complete disgrace. We are however, not blessed with any degree of competence at the upper echelons of government and whilst it is all singing and dancing we can be world leaders. However, when governing, leading and taking hard decisions are required there is a complete vacuum (when your solution to the hugely important issues at stake is to ask the (local and international) press to “report nicely” about South Africa, the emperor is clearly shown to be an absolute fool). The genie is now well out of the bottle and labour issues (read strike season) are now gaining momentum. Whenever something can be labeled such as “strike season” it implies an acceptance of the status quo and this reduces the outrage against what is unlawful action because, it is “strike season” and everyone trashes everything. Shrug of shoulders – not my problem. What makes matters worse is the competition for members among AMCU and NUM with wage increase demands of sixty percent being bandied around (this is not about the increases it is about memberships and the power-base). The poor cannon fodder in this political power play do not recognize this disaster for what it is and as always, the poor and illiterate are going to get shafted.
We are in for a winter of discontent. I will talk about Japan and their money printing exercise next month but there is another case of applying debt to solve the problem of too much debt.
As stated last month, the original QFS prediction, to loud assertions of doom-mongering in response to this prediction, was that slow growth and volatility would persist until at least the end of this decade. Given the mix of events and inputs into this primordial soup of stagnation/ stagflation, I am starting to think that even recovery by the year 2020 could be looking a little optimistic.
Rather than giving you my own diatribe on where we are and what we are doing, I have a few extracts from various sources. I try to do as much reading as possible and try to accommodate people’s thoughts and perspectives, with which I do not always necessarily agree.
Extract courtesy of Mark Corke:
Oh, and in case you have been on another planet, President Zuma despatched Kgalema Motlanthe into the ANC wilderness, and the throbbing masses took that great disciple of Big Black Boss Enrichment Enterprises (BBBEE), Cyril Ramaphosa, to their hearts, giving him more votes than any other candidate for any other position. They will now try to convince us that a man with more than 200 directorships can act impartially in the interests of the country. Viva!
Extract courtesy of John Maudlin. It is an interview with John Maudlin by Ed D’Agostino, a financial information publisher:
John: Another recession, a slow-growth economy is a deflationary world. Interest rates are going to stay low. In addition, the Federal Reserve is moving out the yield curve. They’re artificially making it even worse, or better, depending on your view of what you want rates to do. If you’re borrowing you like them being low.
Ed: But it is awful tough for someone who is saving.
John: Oh, if you’re saving money, I think the technical term for you is, “You’re screwed.” It’s terrible. Everybody talks about, “Well, we want more consumption, we want more consumer spending. Well, that’s why we want to drop the rates, so people will go out and buy stuff”. But when you drop the rates, you’re now giving savers less money, so they have less money to spend. You’re making people who borrow money better, but you’re not helping people who have played the game correctly all their lives. They’ve worked hard, they’ve saved money, and they’re not going to get anything for it.”
From John Hussman, owner of Hussman Funds:
A nation’s “standard of living” is reflected by the amount of goods and services that its people can consume as a result of their efforts. A nation’s “productivity” is reflected by the amount of goods and services that its people can produce as a result of their efforts. Ultimately, one cannot increase for long without the other. Robust domestic investment provides the foundation for both.
The only sustainable course to a higher standard of living is to encourage productive investment. Policies like those currently pursued by the Federal Reserve attempt to encourage consumption, but do so by distorting savings and investment decisions toward speculative activity rather than productive investment. Unfortunately, the reluctance of consumers to spend is tightly linked to existing mortgage and consumer debt burdens, many of which remain unserviceable and have not been restructured. Attempts to squeeze greater consumption demand from these individuals, without a strategy to increase productive activity and income, is likely to produce continued failure.
While policies to stimulate gross domestic investment may be viewed as unwanted “tax expenditures” in deficit reduction efforts, these policies are critical to prevent the unintended consequence of economic contraction.
Fred Smith, the CEO of FedEx, recently observed “The only thing that’s correlated 100% with job creation – and particularly good job creation – is business investment. It’s our reduced level of capital investment that has produced our low GDP growth rates and our high unemployment.”
So, don’t take it all from me – take it from much cleverer people than me.
CIPC continues their extremely successful efforts to frustrate and raise the barriers for entry to the South African economy. If frustrating the economy and ensuring that starting and running a business in South Africa was an Olympic Sport, CIPC would be a world champion. Their job is to do the company admin stuff. They don’t do the manual stuff anymore because they are all clever and high-tech. 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. Please see the communiqué issued and on their (non-working) website:
DELAY AT CIPC OFFICES: The CIPC wishes to advise customers that it is currently experiencing some residual difficulties on its system due to a culmination of technical difficulties experienced during its recent maintenance.
That is government “tautology” speak for we have really buggered something up and we are not sure what, so we are issuing a really vague statement which will attempt to explain that this is definitely not, and could not be, our fault. I ask you with tears in my eyes, how it is possible to be so absolutely 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 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 are 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.
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.
As noted previously SARS are still raping and pillaging bank accounts across the nation if they believe that you owe them money. It does also turn out that SARS aren’t always correct more often than you’d think – but try explaining that to your creditors! Kick him again SARS. (I don’t think that SARS can possibly comprehend the damage that they are doing to the business engines of the South African economy). It must be particularly special to be all-powerful and stupid.
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 persecutory and oppressive fashion, they put a notice on their website on Friday 26 April saying that the tax return format was changing and that all tax returns which were saved but not submitted by 3 May (read one week) would be deleted. It is the QFS suggestion that to change something as fundamental as the tax return format should be communicated well in advance so that people are not saving their tax returns whilst obtaining signature/ authorisation/ clarification et al on a number of points. There are also thousands of people in South Africa who are not accountants and tax practitioners who have businesses to run and do not get onto the SARS website regularly so they will be unaware of this and there are going to be thousands of man-hours lost/ wasted and a huge amount of frustration at the wastage of time when all of these tax returns are deleted. To give so little notice demonstrates a complete disconnect of the reality of the average business person.
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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