I trust this finds you exceptionally well and that the start of this year is a corker, albeit with memories of Christmas and holidays now a distant utopia in the haze. We’re already two months down and time seems to be picking up speed ever faster.
I trust this finds you exceptionally well and that the start of this year is a corker, albeit with memories of Christmas and holidays now a distant utopia in the haze. We’re already two months down and time seems to be picking up speed ever faster. The budget speech has set the tone for the year – which was not grasping the nettle and making the hard decisions but (as always) deferring the unpleasant/ unpopular and necessary decisions and thereby increasing the size of the problem. All market commentators (who cannot agree on anything) have agreed that it promises to be an interesting year – with the Marikana disaster and Winelands strikes nicely baked into the wage negotiation psyche – albeit at the expense of the rapidly diminishing wage earning pool as, unlike government, real productive businesses need to generate a profit or go bankrupt and face ruination. The wage increases thus bludgeoned out of employers have to result in decreased employment. Without having enough facts to make an informed decision as to the percentage of total cost that farming labour comprises, it is worth noting that for any business, a fifty percent increase in their labour charge will require some pretty pro-active cost containing manoeuvers (read enforced retrenchments).
In addition to the aforementioned labour woes energy costs are flying through the roof (albeit Nersa has limited Eskom to 8%). Oil costs are trending up of late in USD real costs, the Rand/ USD has fallen out of bed and Pravin added a huge number onto the fuel levy. Energy costs remain and are likely to increase well above the order of inflation, posing increasingly burdensome quantum’s of business cost bases.
Again, I must draw to your attention that around this time of year there is a huge increase in “phishing” scams whereby nefarious individuals attempt to extort your banking details by purporting to be SARS/ FNB/ Standard Bank/ (Any Bank)/ Publishers House Sweepstakes etc. Be warned, be vigilant, be wise and don’t give out your banking details/ pin/ personal information to any source without double checking, irrespective of the purported validity of the source.
It delights me immeasurably to advise that Michael Kumm from our office, after completing his Articles of Traineeship with this office, passed his Final Qualifying Exam on the 22nd of February 2013. He can now add the letters CA(SA), RA after his name. We are all absolutely overjoyed for him.
In the interests of keeping this letter shorter than the usual four pages, I have included only this (some would say common sense) pithy comment with regards to deficits being run up by incompetent governments the world over (one would think that one’s parent’s would have told one to spend less than one earns – not really rocket science, is it’):
We cannot tax ourselves into prosperity … We can, however, deficit spend ourselves into poverty.” Still valid is the thinking of classical economists like Adam Smith and John Stuart Mill: prosperity derives from the hard work, creativity and ingenuity of a country’s people, not by the federal government spending funds that it does not have. However, by diverting dollars from highly productive individuals and businesses through borrowing or taxes, government policy can spend a country into poverty. Transferring assets from income and wealth generators to consumption, unproductive or even counter-productive uses, however, produces failure. The fundamentals of insufficiency of demand and its root cause, over-indebtedness, still point to an environment in which long-term interest rates remain on a path to lower levels. Van R. Hoisington, Lacy H. Hunt, Ph.D.
CIPC continues their extremely successful efforts to frustrate and raise the barriers for entry to the South African economy. I received an SMS from CIPC at 12h01 on 28 February saying that the system will be down from 18h00 on 28 February to 18h00 on 4 March (over the fiscal year-end – one of the busiest times of the year). It would be funny if it wasn’t so pitiful.
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 have to pay in, we are finding a disproportionate amount of document requests/ audits. It really is a lose/ lose situation. Further thereto, to put another obstacle in the way of the small South African entrepreneur, SARS are now insisting that, where previously sole proprietors could use deemed costs for calculating their vehicle expenditure, now only actual costs multiplied by actual business mileage from the actual log-book may be used. That means that the poor sod (read backbone of the South African economy) has to now account for every kilometer travelled and keep every single piece of vehicle expenditure with military precision – or face reduced tax write-offs. This is also the poor sod who has to comply with FICA/ RICA/ tax law/ labour law/ etc etc etc. Well, if you can’t kick a man when he is down, when can you kick him’
As noted last month 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.
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 (hmm, I wonder who that could be) then if you aren’t a really important government official, SARS will investigate the mismatch.
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.
March 12, 2013 By No comments yet Economic Commentary
I trust this finds you exceptionally well and that the start of this year is a corker, albeit with memories of Christmas and holidays now a distant utopia in the haze. We’re already two months down and time seems to be picking up speed ever faster.
I trust this finds you exceptionally well and that the start of this year is a corker, albeit with memories of Christmas and holidays now a distant utopia in the haze. We’re already two months down and time seems to be picking up speed ever faster. The budget speech has set the tone for the year – which was not grasping the nettle and making the hard decisions but (as always) deferring the unpleasant/ unpopular and necessary decisions and thereby increasing the size of the problem. All market commentators (who cannot agree on anything) have agreed that it promises to be an interesting year – with the Marikana disaster and Winelands strikes nicely baked into the wage negotiation psyche – albeit at the expense of the rapidly diminishing wage earning pool as, unlike government, real productive businesses need to generate a profit or go bankrupt and face ruination. The wage increases thus bludgeoned out of employers have to result in decreased employment. Without having enough facts to make an informed decision as to the percentage of total cost that farming labour comprises, it is worth noting that for any business, a fifty percent increase in their labour charge will require some pretty pro-active cost containing manoeuvers (read enforced retrenchments).
In addition to the aforementioned labour woes energy costs are flying through the roof (albeit Nersa has limited Eskom to 8%). Oil costs are trending up of late in USD real costs, the Rand/ USD has fallen out of bed and Pravin added a huge number onto the fuel levy. Energy costs remain and are likely to increase well above the order of inflation, posing increasingly burdensome quantum’s of business cost bases.
Again, I must draw to your attention that around this time of year there is a huge increase in “phishing” scams whereby nefarious individuals attempt to extort your banking details by purporting to be SARS/ FNB/ Standard Bank/ (Any Bank)/ Publishers House Sweepstakes etc. Be warned, be vigilant, be wise and don’t give out your banking details/ pin/ personal information to any source without double checking, irrespective of the purported validity of the source.
It delights me immeasurably to advise that Michael Kumm from our office, after completing his Articles of Traineeship with this office, passed his Final Qualifying Exam on the 22nd of February 2013. He can now add the letters CA(SA), RA after his name. We are all absolutely overjoyed for him.
In the interests of keeping this letter shorter than the usual four pages, I have included only this (some would say common sense) pithy comment with regards to deficits being run up by incompetent governments the world over (one would think that one’s parent’s would have told one to spend less than one earns – not really rocket science, is it’):
We cannot tax ourselves into prosperity … We can, however, deficit spend ourselves into poverty.” Still valid is the thinking of classical economists like Adam Smith and John Stuart Mill: prosperity derives from the hard work, creativity and ingenuity of a country’s people, not by the federal government spending funds that it does not have. However, by diverting dollars from highly productive individuals and businesses through borrowing or taxes, government policy can spend a country into poverty. Transferring assets from income and wealth generators to consumption, unproductive or even counter-productive uses, however, produces failure. The fundamentals of insufficiency of demand and its root cause, over-indebtedness, still point to an environment in which long-term interest rates remain on a path to lower levels. Van R. Hoisington, Lacy H. Hunt, Ph.D.
CIPC continues their extremely successful efforts to frustrate and raise the barriers for entry to the South African economy. I received an SMS from CIPC at 12h01 on 28 February saying that the system will be down from 18h00 on 28 February to 18h00 on 4 March (over the fiscal year-end – one of the busiest times of the year). It would be funny if it wasn’t so pitiful.
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 have to pay in, we are finding a disproportionate amount of document requests/ audits. It really is a lose/ lose situation. Further thereto, to put another obstacle in the way of the small South African entrepreneur, SARS are now insisting that, where previously sole proprietors could use deemed costs for calculating their vehicle expenditure, now only actual costs multiplied by actual business mileage from the actual log-book may be used. That means that the poor sod (read backbone of the South African economy) has to now account for every kilometer travelled and keep every single piece of vehicle expenditure with military precision – or face reduced tax write-offs. This is also the poor sod who has to comply with FICA/ RICA/ tax law/ labour law/ etc etc etc. Well, if you can’t kick a man when he is down, when can you kick him’
As noted last month 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.
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 (hmm, I wonder who that could be) then if you aren’t a really important government official, SARS will investigate the mismatch.
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.