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Please note that I have been dragged kicking and screaming into the 20th century

Please note that I have been dragged kicking and screaming into the 20th century (no typo – I hope to be dragged into the 21st century in another month or three’s time) and we are going to be changing our communication and invoicing methods over the balance of the year. 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.

Given that the shots have already been made across the bows (I weep with despair) by the incompetent (sorry, that should read incumbent) government for the necessary tax increases to fund Nkandla, SABC, SANRAL, Eskom and the rest of the sorry state owned/ sponsored enterprises (SOEs), I thought I would include the following excerpt from John Maudlin. Before I get there, I had a discussion with two clients this month regarding Eskom – one making the point that Eskom is effectively bankrupt and the other asking the furious question how it is possible that Eskom can have increased electricity prices by the 200% (or whatever the actual number is) over the last five years and still (a) be bankrupt, (b) not be able to keep the lights on, (c) not be able to build a power station in the five years since the brownouts started (how can they not have managed to do anything in FIVE YEARS) and (d) have to keep trying for insane increases that are throttling the economy because they are that bloated and that inefficient at their (only) core business.

The following extract from John Maudlin who is one of the most respected economists in the US of A. He delves below the “apparent recovery” into the decline in the unemployment numbers in the US and has several very disturbing conclusions. Extrapolating his and some other fine minds research on the buoyancy of the various equity indices around the world I am becoming increasingly concerned as to when the reversal is going to happen because the fundamentals simply aren’t there. I remember feeling this way in 2007 with increasing disquiet as to the ever-onward economic trajectory, as all around us it was clearly a debt-fuelled consumption bubble. Given that there has been an incredibly poor economic recovery, anemic growth in the USA, huge structural headwinds, ongoing disaster and recession in the Euro Zone, Japan starting the great currency war of the “20 teens” and China slowing down, it simply and fundamentally does not make sense that bourses around the world are continuing to hit record highs. Frankly, it beggars belief.

Right, seriously now, without any further ado, John Maudlin (excerpt commences):

It is pretty well established that a tax increase, especially an income tax increase, will have an immediate negative effect on the economy, with a multiplier of between 1 and 3 depending upon whose research you accept. As far as I am aware, no peer-reviewed study exists that concludes there will be no negative effects. The US economy is soft; employment growth is weak – and yet we are about to see a significant middle-class tax increase, albeit a stealth one, passed by the current administration.

I will acknowledge that dealing a blow to the economy was not the actual plan, but that is what is happening in the real world where you and I live. This week we will briefly look at why weak consumer spending is going to become an even greater problem in the coming years, and we will continue to look at some disturbing trends in employment.

Last week, I noted at the beginning of the letter that an unintended consequence of Obamacare is a rather dramatic rise in the number of temporary versus full-time jobs. This trend results from employers having to pay for the health insurance of employees who work more than 29 hours a week.

I quoted Mort Zuckerman, who wrote in the Wall Street Journal:
The jobless nature of the recovery is particularly unsettling. In June, the government’s Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000 – but there are jobs and then there are “jobs.” No fewer than 557,000 of these positions were only part-time. The June survey reported that in June full-time jobs declined by 240,000, while part-time jobs soared 360,000 and have now reached an all-time high of 28,059,000 – three million more part-time positions than when the recession began at the end of 2007.

That’s just for starters. The survey includes part-time workers who want full-time work but can’t get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May.

As it turns out, the unintended consequences of Obamacare are not the only problem. Charles Gave wrote a withering indictment of quantitative easing this week (which we will look at in a few pages) and included the following chart, which caught my eye. Note that the relative increase in part-time jobs began prior to Obama’s even assuming office. The redefinition of part-time as less than 29 hours a week and the new costs associated with full-time employment due to Obamacare simply accelerated a trend already set into motion.

Excerpt ends.
Consider the impact for yourself if you had to suddenly start working a 29 hour week. That is a 25% drop in income. Just like that. Expenses remain what they were the month before. Try finding constructive work for ten hours a week to fill the (income) gap to pay the school-fees/ car/ security/ groceries etc, which all remain the same. There are huge structural and social wrenches taking place to adjust to this “new normal”.
CIPC. Broken. An internal statutory change to records of a related company (one of ours) commenced on 19 October 2012. It was concluded on 23 July 2013. Thank goodness it was an internal matter as trying to explain this kind of delay to a client, who is baying to start a business/ open a bank account/ start trading, is impossible. I have nothing more to say about CIPC except they should be included in the category of useless SOEs as referred to above. And then shot. Repeatedly.
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. 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. 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 have 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.

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.

A client emigrated from South Africa many years ago. He inherited some money which pushes him above the tax threshold and needed to be registered for tax in South Africa. We duly registered him with effect from the 2014 tax year. SARS have registered him from 1974 and for provisional tax from 1986. So, he now has to submit tax returns going to back to 1974. That is 39 years ago. I weep – but have applied for a job at SARS – imagine getting paid for doing that. Arrive late, long lunch, leave early and produce this absolute hogwash in cloud fairy-land. Go and a strike once a year for more money. And get paid for it.

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. Progress? I believe it is great.

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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