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I trust this finds you exceptionally well as we are seconds away from the annual South African shut-down. December will be upon us before we know it so please ensure that your year-end planning is in place, in terms of cash-flow, vehicle safety checking, final things to be done before shutting down et al, so as to avoid the mad last-minute rush. Further, as always, ensure that you are ready for the new year and have pre-planning measures to avoid any down-time, whilst counterparties/ staff/ suppliers et al are away.

As you may have noticed from missives past, I am somewhat bearish on the state of the global economy, my concern being based on the fact that there is performance without the underlying fundamentals – which leads to bubbles (continuing record levels of the stock markets all over the world anyone?). I will cease and desist from the usual doom and gloom and hand you over into the arms of John Maudlin 2013/1027 (and he can be doomy and gloomy):

This unprecedented global monetary experiment has only just begun, and every central bank is trying to get in on the act. It is a monetary arms race, and no one wants to be left behind. The Bank of England has devalued the pound to improve exports by allowing creeping inflation and keeping interest rates at zero. The Federal Reserve has tried to weaken the dollar in order to boost manufacturing and exports. The Bank of Japan, not to be outdone, is now trying to depreciate the yen. By weakening their currencies, they hope to boost their exports and get a leg up on their competitors. In the race to debase currencies, no one wins.

Emerging market countries like Brazil, Russia, Malaysia, and Indonesia will not sit idly by while developed central banks weaken their currencies. They are fighting to keep their currencies from appreciating. They are imposing taxes on investments and savings in their currencies. Countries are turning protectionist. The battles have only begun in what promises to be an enormous, ugly currency war. If the currency wars of the1930 and 1970s are any guide, we will see knife fights ahead. Governments will fight dirty, they will impose tariffs and restrictions and capital controls. It is already happening and we will see a lot more of it.

If only they were just armed with knives. Some central banks are better armed than others. Indeed, you might say that the four biggest central banks – the Fed, BOE, ECB, and BOJ – have nuclear arsenals. In a fight for national survival – which is what a crisis this major will feel like – will central bankers resort to the nuclear option? The conflict could get very messy for those in the neighbourhood.

Providing more debt and more credit after a bust that was caused by too much credit is like suggesting whiskey after a hangover. Paradoxical as the cure may be, many economists and investors think that it is just what the doctor ordered. At the star-studded World Economic Forum retreat in Davos, Switzerland, the billionaire George Soros pointed out the contradiction policy makers now face. The global financial crisis happened because of too much debt and too much money floating around. However, according to many economists and investors, the solution may in fact be more money and more debt. As he said, “When a car is skidding, you first have to turn the wheel in the same direction as the skid to regain control because if you don’t, then you have the car rolling over.” Only after the global economy has recovered can the car begin to right itself. Before central banks can be responsible and conventional, they must first be irresponsible and unconventional.

The arsonists are now running the fire brigade. Central bankers contributed to the economic crisis the world now faces. They kept interest rates too low for too long. They fixated on controlling inflation, even as they stood by and watched investment banks party in an orgy of credit. Central bankers were completely incompetent and failed to see the Great Financial Crisis coming. They couldn’t spot housing bubbles, and even when the crisis had started and banks were failing, they insisted that the banks they supervised were well regulated and healthy. They failed at their job and should have been fired. Yet governments now need central banks to erode the mountain of debt by printing money and creating inflation.

Investors should ask themselves: if central bankers couldn’t manage conventional monetary policy well in the good times, what makes us think that they will be able to manage unconventional monetary policies in the bad times?

Economists know that there are no free lunches. Creating tons of new money and credit out of thin air is not without cost. Massively increasing the size of a central bank’s balance sheet is risky and stores up extremely difficult problems for the future. Central bank policies may succeed in creating growth, or they may fail. It is too soon to call the outcome, but what is clear (at least to us) is that the experiment is unlikely to end well.

The endgame for the current crisis is not difficult to foresee; in fact, it’s already underway. Central banks think they can swell the size of their balance sheet, print money to finance government deficits, and keep rates at zero with no consequences. Bernanke and other bankers think they have the foresight to reverse their unconventional policies at the right time. They’ve been wrong in the past, and they will get the timing wrong in the future. They will keep interest rates too low for too long and cause inflation and bubbles in real estate, stock markets, and bonds. What they are doing will destroy savers who rely on interest payments and fixed coupons from their bonds. They will also harm lenders who have lent money and will never be repaid in devalued dollars, if they are repaid at all.

We are already seeing the unintended consequences of this Great Monetary Experiment. Many emerging market stock markets have skyrocketed, only to fall back to earth at the hint of an end to Code Red policies. Junk bonds and risky commercial mortgage-backed securities are offering investors the lowest rates they have ever seen. Investors are reaching for riskier and riskier investments to get some small return. They’re picking up dimes in front of a steamroller. It is fun for a while, but the end is always ugly. Older people who are relying on pension funds to pay for their retirement are getting screwed (that is a technical economic term that we will define in detail later). In normal times, retirees could buy bonds and live on the coupons. Not anymore. Government bond yields are now trading below the level of inflation, guaranteeing that any investor who holds the bonds until maturity will lose money in real terms.

Excerpt ends.

Beware and watch for bubbles. I would be inclined to have some cash reserves at hand for the foreseeable future (remember that the JSE dropped from its previous peak of 33,000 in 2008 to some 19,000 in 2009. Bargains abounded.

As referred to over the last few months, I have been dragged kicking and screaming into the 20^th century and will soon be dragged kicking and screaming into the 21^st century, if my colleagues have anything to do with this. We are in the process of changing our communication and invoicing methods. Strangely enough, given the doom/ gloom/ cautionary/ admonitory position that we at QFS are advocating about world affairs, I have had a large number of requests for more communications (particularly from folk who are in Australia/ America/ UK etc). To that end, we are going to be splitting the invoicing function from the monthly newsletter function and over the next few months, invoices will be sent separately from the newsletter. Newsletters will be sent to all clients to use/ lose/ abuse and invoices will be sent on a more ad-hoc basis as opposed to the huge monthly process that it currently is. Onwards and upwards….

On to other matters. CIPC. Still broken. Broken, broken, broken. Muppets! I am astounded, on a regular basis, at the ingenuity of their incompetence.

SARS, oh SARS. Oh my goodness me. I thought last month was a bad month. This was an absolute shocker.

More than half of the tax returns being submitted (by ourselves and other firms) are going for audit, often for eyewateringly large amounts of money such as a refund due to the taxpayer of R346.11. Or a top-up payment due of R501.26. We had one stretch where in the space of a few days we submitted ten tax returns and every single one went to audit………….

I, as a tax practitioner, then received a letter saying that I was not compliant and that they were going to report me to SAICA for censure/ disciplinary action. And we are compliant. I had it checked immediately. “No monies or returns are outstanding and the tax clearance which was applied for in June 2013 is still valid, case numbers 119770138/ 119768958”. I also had Quotient checked and it turns out that suddenly QFS owes R164.66 UIF from adjustments made by SARS affecting the 2008 year and R27.65 UIF from adjustments made by SARS affecting the 2010 year. This is a new and exciting surprise that wasn’t there the last time I checked. For goodness sake! And I am going to pay these amounts because it is not worth my while to even figure out what they did and why. (The R30.80 VAT adjustment that they made to my October 2004 VAT return cost me about R10,000 in terms of time investment to resolve – and they were wrong and reversed it). So here we have four people’s time being wasted and my good reputation being besmirched and SARS threatening to report me to SAICA. God help us mere mortals if we cocked things up 1/10^th as regularly or 1/10^th as completely and/ or as spectacularly as these completely and utterly inept, bungling, useless and incompetent retards do.

As has been mentioned, SARS have changed e-filing payments from taxpayers from a debit pull to a credit push methodology. In their time-honoured manner of ignoring the real world SARS announced on 3 September 2013 that, starting on 4 September 2013, debit pull transactions will be phased out by 30 September. This little announcement does not do justice to the absolute disaster that it is.

To explain what this all means: With debit pull a taxpayer or their approved representative may authorise SARS to collect the money owed directly from their bank on their behalf, which means that SARS is initiating the collection directly from their bank. SARS does so by instructing the bank to collect the amount from the taxpayer’s bank account.

SARS have decided that the taxpayer needs to “push” the money (this being the credit push) i.e. instruct their bank to pay the money to SARS as opposed to an instruction from SARS to their bank to collect the money.

The problems that have resulted have been huge – the banks are not prepared for this and are, in some cases, unaware of the difference or how to set up/ help clients set up their credit-pushes. It also means that for some banks the payment can be set up on e-filing, but the taxpayer has to go into their banking profile themselves to authorise the payment. Clearly this can only be done once the taxation amount has been quantified and the return submitted to SARS. Given the fundamental way in which this complete fiasco changes the way that business in South Africa works one would have most sincerely hoped that there might be one person in SARS who had an inkling of what happens in the real world e.g. taxpayers are abroad, at sea, incommunicado, South African telecoms and internet are terrible and there are a host of reasons why said taxpayers cannot necessarily be eagerly sitting at their computer or their bank, simply gagging to authorise their EMP or VAT or tax payments. In addition, in some instances (depending upon the bank), this means that the money needs to actually be in the account, so, to set up a payment, one has to transfer the money out of the money market/ other account to ensure there are funds in the account, set up the payment and then transfer the money back into the money market account until the day before payment when it has to be transferred back again (with concomitant transaction cost). Sadly, it appears that the team brain-cell was out of the office on the day this little brainwave passed into policy. There are a host of further issues and ill-considered consequences but in the interests of keeping this letter under ten pages, I will cease and desist, disgustedly, forthwith.

To advise you of my personal experience with the credit push disaster, I did the QFS payroll for October and set up a credit push payment with the request date 4 November. I got an authorisation request e-mail from Investec and authorised the payment (on Sunday) thinking (not unreasonably seeing that it was set up on the SARS system to go on the 4^th of November) that it would go on the 4th of November. SARS took the money on that Monday. This is completely and utterly scandalous (thank goodness I had money in the account). For the avoidance of doubt, I set up the payment on 27 October to run on 4 November and authorised it to run on 4 November and SARS took the money the following day (on 28 October). This is going to cause mayhem all over South Africa because irrespective of the set-up date (certainly from Investec), once authorised for a future date, it disappears on the next banking day.

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 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 September 2013, there is only one software provider in South Africa that has set up their software to generate the inputs/ reports in the format required). I say this somewhat tongue in cheek, but if one of these IT14SD requests is received, due to the time and cost involved in completing it, it is cheaper and more fulfilling to emigrate to Lappland.

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. This is very important and your urgent attention to this oft-overlooked clerical control should be reviewed for best practice, particularly in the case of items submitted to SARS.

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.

Whew, that was a lot about SARS. All true. None of it good. The facts, I only give you the facts and the facts are that SARS are completely divorced from business reality and completely unaware of the cost and obstructive implications that their policies are inflicting upon real people, working in a real world where delivery, client satisfaction and price matter.

There is some good news (which has, strangely enough, nothing to do with SARS, CIPC or any government institution): In the Personal Finance section of the Week-End Argus of 13 October, it was stated that IT34s (tax assessments) will be accepted by banks as income substantiation (so that should reduce the admin cost and time when applying for financing/ mortgages etc).

Moving away from the incompetence and the negativity and onto real people who do wonderful things for their fellow human beings:

Four of the organizations that we support are: 1) True North (True-North.co.za) which works with previously disadvantaged communities through the provision of education, primary care, research and technology sharing – any and all donations are welcomed. Contact Vicky on the above website or speak to us at the Quotient offices; 2) The Fundza Literacy Trust, whose mission is to popularise reading and build a community of readers and writers among its teen/ young adult demographic. Your support would be welcomed – please see Fundza.co.za for details, contact Mignon through the website or speak to us at the Quotient offices for more details; 3) “Just Footprints” which provides children suffering with serious life-threatening diseases or who are orphaned or physically disabled, with a unique outdoor camping experience which they would normally be denied. All of these children spend their lives confined indoors in hospitals or children’s homes and seldom, if ever, experience any normal childhood activities. The Just Footprints Foundation has hosted approximately 2,000 children under the careful supervision of medical professionals and fully trained volunteers in various provinces in South Africa. Just Footprints works in close consultation with CHOC (Children with Cancer), Reach For a Dream, Cotlands and Ithemba Hope Trust in selecting children to attend the camps. All support and involvement is welcomed, please contact chris.willmot@justfootprints.org.za; 4) Edunova (Edunova.org; contact John Thole) who have worked to develop a cost effective human resourcing model for ICT in schools, by employing young adults, local to the school community and then training, guiding and mentoring them to support schools who have acquired ICT facilities and equipment. The passion and dedication and brilliance of all of these people who have devoted their lives and energies to the upliftment and betterment of others is truly humbling.

As always, please consider what you can do to ease pressure on our planet – if you have recycling of an electronic nature – old PCs/ equipment/ toasters/ televisions or anything electrical, please contact ecycle.co.za for recycling of these items.

Oasis Recycling (Oasisrecycling.co.za) collects “normal” recycling – glass/ cans/ paper etc from the office (speak to them for details) and provides work for some 450 intellectually disabled men, women and children. Having a recycling bin at work is probably the most carbon-effective means of recycling as no “special trip” is necessitated.

To confirm our contact numbers and deal with increasing telephonic demand, we now have five contact numbers, namely 021 701 4052, 021 701 4063, 021 701 3812, 0861 378 881 (which is a share-call number) having just added 021 701 3965. Please use the relevant person’s cellular telephone if getting through to switch-board is taking some time. Further thereto, please note that we have issued multiple communications – we started migrating our e-mail addresses from Name@QuotientFinancial.com to Name.Surname@QuotientBusiness.com in 2010.

Please note that we have unfortunately, due to certain instances of severe client abuse, had to adopt a policy of suspending accounts that are outstanding for longer than sixty days. Please settle soonest to ensure that an inadvertent suspension does not take place. Further thereto, should you have any invoicing queries on any current or outstanding invoices, please advise soonest so that these matters can be dealt with.

To end off on something more upbeat, her are some eye-catching business signs

In a Podiatrist’s office: “Time wounds all heels.”

On a Plumber’s truck: “We repair what your husband fixed.”

On another Plumber’s truck: “Don’t sleep with a drip. Call your plumber.”

On a Church’s Bill board: “7 days without God makes one weak.”

At a Tyre Store: “Invite us to your next blow out.”

On an Electrician’s truck: “Let us remove your shorts.”

In a Non-smoking Area: “If we see smoke, we will assume you are on fire and take appropriate action.”

On a Maternity Room door: “Push. Push. Push.”

At an Optometrist’s Office: “If you don’t see what you’re looking for, you’ve come to the right place.”

On a Taxidermist’s window: “We really know our stuff.”

At a Car Dealership: “The best way to get back on your feet – miss a car payment.”

Outside a Car Exhaust Store: “No appointment necessary. We hear you coming.”

In a Vet’s waiting room: “Be back in 5 minutes. Sit! Stay!”

In a Restaurant window: “Don’t stand there and be hungry; come on in and get fed up.”

In the front yard of a Funeral Home: “Drive carefully. We’ll wait.”

At a Radiator Shop: “Best place in town to have a leak.”

Back of a Septic Tank Truck: “Caution – This Truck is full of Political Promises”

The old adage of living in interesting times seems to become more apt every month.
Europe. I continue to watch with horrified fascination as the unfolding train-crash takes another month to damage itself. There is, as yet, no resolution, with the problems that are, and have been identified not being decisively dealt with and, ergo, not being fixed. The longer that this wound is allowed to fester, the bigger the mess. It is the considered opinion of Greg Weldon (Weldononline.com) that with regards to Europe: “Spain, Portugal and Italy are severely damaged, and sinking fast and the Netherlands, France, Belgium, Finland and Sweden are hurt, and the pain is worsening.” (more…)