I trust this finds you exceptionally well as the year marches on. February, the fiscal year-end and the South African budget speech is already behind us. This is thus an excellent time to strategise, budget, plan and communicate those goals to all stakeholders – ensuring that there is follow-up control exercised and budgets matched to actual.
The European train-crash continues in slow motion, albeit the casualties are now going to start appearing. In terms of a missive (finally!, after studiously avoiding the elephant in the room for as long as possible) issued on 9 March by the International Swaps and Derivatives Association (ISDA), “a restructuring event has taken place with regards to Greek debt.” One does not need a finance degree to understand that if one lends someone money and does not get all of it back; that certainly some kind of “restructuring event”, more commonly known as a “default,” has taken place. The difference, however, is that now that the ISDA has pronounced, it is now official and “amptelik.” This is going to trigger credit default swaps as well as crystallizing the size of the losses that various banks/ pension funds and institutions are going to take. The debts, to the extent that they are not recoverable, have now moved from a “doubtful” debt to a “bad” debt. This has huge implications in terms of both the liquidity and solvency of banks (some of whom may not meet the required liquidity or capital requirements). Watch this space.
Attention is now being focused on the next European domino in line (that would be Portugal and Spain tussling it out to take the honours). Too much debt is, has been, and remains, the problem. The only solution is to “earn” more or spend less. As the countries have backed themselves into a corner there are no easy or quick solutions and time is not on their side. Portugal’s bonds are approaching 20% (which makes their debt financing unsustainable) and we watched the Greek movie on this almost exactly a year ago (when Greek bonds were approaching 15%).
If one reads the popular press there are politicians announcing that: 1. The crisis is over. 2. There is no crisis. 3. No other peripheral countries will be affected by crisis that isn’t.
This unfortunate situation is going to play out with glacial swiftness over the next two years, as varying deadlines/ fiscal roll-overs come up and need to be met.
However, at the core of the problem, and this has not yet been addressed is the issue that one cannot cure a debt problem by the addition of more debt. There is thus a debt crisis of unparalleled proportions playing out.
With regards to the ongoing disaster/ national embarrassment that is the Companies and Intellectual Properties Commission (CIPC), they have set incredibly low standards and consistently fail to achieve them. It truly beggars belief – and is costing the long-suffering South African taxpayer and business-person, millions of real Rands and incalculable costs of lost opportunity (the CIPC spokesman explained from Davos, Switzerland, that there was actually no crisis at all). Not many people took comfort from that!
On to more pleasant matters (comparatively speaking) – as has been referred to on multiple occasions, SARS audits have increased significantly in scope and quantum and we are finding, in some cases, a complete disconnect between the amount of tax in question and the underlying reason for/ amount of time to be spent on the audit. There is now insurance available from QDos Consulting to cover costs relating to SARS audits. . There is no recourse to SARS for the extra costs incurred if nothing else is uncovered.
In addition, SARS have added a beast to their arsenal known as an IT14 SD. 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). That means that all items such as insurance, rent, telephone and all “normal business overheads” are reconciling items. This is not necessarily rocket science but the tolerance level is R100 (yes that is one hundred Rand). Further thereto, it necessitates splitting all purchases made into VATable and non-vatable suppliers. Be aware, this is an incredibly time-intensive exercise as accounting systems are not set up to extract the data in the format in which SARS want it. Please note, and I stress this, this is a SARS initiative. We will assist if required, but it is not our brain-child. This is a SARS initiative.
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