I trust this finds you exceptionally well now that Spring has sprung – somewhat belated and somewhat wetter over the last few weeks – but the jasmine, ranunculus and oak leaves (in their iridescent shade of green) have popped and the landscape is waking up to the Spring festival after its winter hibernation.
I trust this finds you exceptionally well now that Spring has sprung – somewhat belated and somewhat wetter over the last few weeks – but the jasmine, ranunculus and oak leaves (in their iridescent shade of green) have popped and the landscape is waking up to the Spring festival after its winter hibernation.
As referred to last month, I am currently being dragged kicking and screaming into the 20th century and will soon be dragged kicking and screaming into the 21st century, if my colleagues have anything to do with this. 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.
As referred to above, we remain exceptionally bearish on the world outlook. Back in the heady boom years of 2004 to 2007, when the world was on its credit-fueled consumption boom, I was wondering what the trigger would be to the down-turn (what goes up, must come down). Amazing to think that some (well, a lot really) dodgy mortgages in America would bring the world to its knees and expose the fundamental cracks in the so-called European Union. I remain increasingly concerned at the currently elevated levels of the various equity bourses across the world. The bourses are at record highs, reflecting the cheap money of the Fed QE program. The bourses and their underlying economies, however, are not supported by fundamentals i.e. earnings, good employment uptake (ergo good consumer spending) and sustainable enterprises that are producing (emphasis on producing!). If one looks, for example, at France, more than fifty percent (and increasing as I write) of their GDP is generated by government and given that government is, by definition, consumptive, obstructive, ill-informed and inefficient, it beggars belief that anyone thinks that this trajectory can continue. You cannot indefinitely consume more than you produce, you can’t spend more than you earn and a host of other epithets spring to mind and incurring debt to fund consumption expenditure is the worst type of folly. In that context, the stratospheric levels currently enjoyed by various indices cannot be sustainable. At best, a long period of stagnation beckons; worst case scenario, a significant correction is in order. This viewpoint is underscored by the extreme volatility which has been taking place in emerging markets (five years ago all currencies strengthened as the easy money from the Fed went looking for yield, now no-one wants to be left (to mix a metaphor) holding the baby when everyone else has run for the exits).
The following extract from Michael E. Lewitt (who, as it happens, shares my view of politicians):
Ben Bernanke, of course, is trying to lower investors’ threshold regarding the return they require for taking risk, but investors should not be fooled. By doing what he is doing, Mr. Bernanke is actually significantly increasing the systemic and other risks that investors are facing. And for that reason, investors should actually be demanding higher, not lower, real returns on their investments. I realize that last statement is directly contrary to the consensus that argues that the Federal Reserve (and other central banks) have taken the tail risk out of the markets with their extraordinary market interventions. My response to the consensus is that central banks have done nothing of the kind; at best, they have delayed the occurrence of tail risks, but in doing so have guaranteed that the consequences of tail risks will be far more severe when they inevitably materialize. The policies that are being employed to create the appearance of economic and market stability are not effectively addressing the underlying symptoms of economic malaise; in fact, they are exacerbating them. Debt is being used to cure a debt crisis in the hope that fiscal policies will be implemented that will foment sufficiently high economic growth to create the income necessary to service and ultimately repay that debt. But even in the best of all possible worlds such an outcome would be a long shot since the sheer amount of debt being generated to keep economies afloat is too large to be serviced or repaid. And as we are all painfully aware, we don’t live in the best of all possible worlds – we live in a world populated by corrupt and narcissistic politicians and business leaders who refuse to effect the necessary fiscal reforms that would at least give monetary policy a chance to work. As a result, the post-crisis world has been left more indebted and more interconnected than the pre-crisis world. The tails may be buried a little deeper than they were, but they are fatter than ever.
Except ends.
On to other matters. CIPC. Still broken. As mentioned last month, an internal statutory change to records of a related company (one of our internal companies) 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 good to say about CIPC and my mom says that if you cannot say anything nice about someone, you should say nothing at all. A lot of nothing thus said.
SARS, ah SARS. As has been mentioned, 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 really 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 they 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 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, if we could not submit the document and rather invite SARS to audit and were categorically informed that this was not an option. The IT14SD HAS to be submitted, irrespective of time and cost incurred. 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. In addition, the further one goes up the earnings scale, we are now finding that one in two tax returns are going for audit.
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.
As referred to last month, 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.
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.
To end off on something a little lighter:
1. Accept the fact that some days you’re the pigeon, and some days you’re the statue!
2. Always keep your words soft and sweet, just in case you have to eat them.
3. Drive carefully… It’s not only cars that can be recalled by their Maker.
4. If you can’t be kind, at least have the decency to be vague.
5. If you lend someone $20 and never see that person again, it was probably worth it.
6. Never put both feet in your mouth at the same time, because then you won’t have a leg to stand on.
7. Nobody cares if you can’t dance well. Just get up and dance.
8. Birthdays are good for you. The more you have, the longer you live.
9. You may be only one person in the world, but you may also be the world to one person.
10. A truly happy person is one who can enjoy the scenery on a detour.
Should you require any further information or wish to discuss any of the aforementioned, please do not hesitate to come back to me. Further, we welcome any and all feedback and/ or constructive criticism. If there is something that you feel that we can do better for you, please let me know soonest.
Best wishes
John
September 11, 2013 By Comments are Off Economic Commentary
I trust this finds you exceptionally well now that Spring has sprung – somewhat belated and somewhat wetter over the last few weeks – but the jasmine, ranunculus and oak leaves (in their iridescent shade of green) have popped and the landscape is waking up to the Spring festival after its winter hibernation.
I trust this finds you exceptionally well now that Spring has sprung – somewhat belated and somewhat wetter over the last few weeks – but the jasmine, ranunculus and oak leaves (in their iridescent shade of green) have popped and the landscape is waking up to the Spring festival after its winter hibernation.
As referred to last month, I am currently being dragged kicking and screaming into the 20th century and will soon be dragged kicking and screaming into the 21st century, if my colleagues have anything to do with this. 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.
As referred to above, we remain exceptionally bearish on the world outlook. Back in the heady boom years of 2004 to 2007, when the world was on its credit-fueled consumption boom, I was wondering what the trigger would be to the down-turn (what goes up, must come down). Amazing to think that some (well, a lot really) dodgy mortgages in America would bring the world to its knees and expose the fundamental cracks in the so-called European Union. I remain increasingly concerned at the currently elevated levels of the various equity bourses across the world. The bourses are at record highs, reflecting the cheap money of the Fed QE program. The bourses and their underlying economies, however, are not supported by fundamentals i.e. earnings, good employment uptake (ergo good consumer spending) and sustainable enterprises that are producing (emphasis on producing!). If one looks, for example, at France, more than fifty percent (and increasing as I write) of their GDP is generated by government and given that government is, by definition, consumptive, obstructive, ill-informed and inefficient, it beggars belief that anyone thinks that this trajectory can continue. You cannot indefinitely consume more than you produce, you can’t spend more than you earn and a host of other epithets spring to mind and incurring debt to fund consumption expenditure is the worst type of folly. In that context, the stratospheric levels currently enjoyed by various indices cannot be sustainable. At best, a long period of stagnation beckons; worst case scenario, a significant correction is in order. This viewpoint is underscored by the extreme volatility which has been taking place in emerging markets (five years ago all currencies strengthened as the easy money from the Fed went looking for yield, now no-one wants to be left (to mix a metaphor) holding the baby when everyone else has run for the exits).
The following extract from Michael E. Lewitt (who, as it happens, shares my view of politicians):
Ben Bernanke, of course, is trying to lower investors’ threshold regarding the return they require for taking risk, but investors should not be fooled. By doing what he is doing, Mr. Bernanke is actually significantly increasing the systemic and other risks that investors are facing. And for that reason, investors should actually be demanding higher, not lower, real returns on their investments. I realize that last statement is directly contrary to the consensus that argues that the Federal Reserve (and other central banks) have taken the tail risk out of the markets with their extraordinary market interventions. My response to the consensus is that central banks have done nothing of the kind; at best, they have delayed the occurrence of tail risks, but in doing so have guaranteed that the consequences of tail risks will be far more severe when they inevitably materialize. The policies that are being employed to create the appearance of economic and market stability are not effectively addressing the underlying symptoms of economic malaise; in fact, they are exacerbating them. Debt is being used to cure a debt crisis in the hope that fiscal policies will be implemented that will foment sufficiently high economic growth to create the income necessary to service and ultimately repay that debt. But even in the best of all possible worlds such an outcome would be a long shot since the sheer amount of debt being generated to keep economies afloat is too large to be serviced or repaid. And as we are all painfully aware, we don’t live in the best of all possible worlds – we live in a world populated by corrupt and narcissistic politicians and business leaders who refuse to effect the necessary fiscal reforms that would at least give monetary policy a chance to work. As a result, the post-crisis world has been left more indebted and more interconnected than the pre-crisis world. The tails may be buried a little deeper than they were, but they are fatter than ever.
Except ends.
On to other matters. CIPC. Still broken. As mentioned last month, an internal statutory change to records of a related company (one of our internal companies) 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 good to say about CIPC and my mom says that if you cannot say anything nice about someone, you should say nothing at all. A lot of nothing thus said.
SARS, ah SARS. As has been mentioned, 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 really 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 they 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 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, if we could not submit the document and rather invite SARS to audit and were categorically informed that this was not an option. The IT14SD HAS to be submitted, irrespective of time and cost incurred. 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. In addition, the further one goes up the earnings scale, we are now finding that one in two tax returns are going for audit.
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.
As referred to last month, 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.
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.
To end off on something a little lighter:
1. Accept the fact that some days you’re the pigeon, and some days you’re the statue!
2. Always keep your words soft and sweet, just in case you have to eat them.
3. Drive carefully… It’s not only cars that can be recalled by their Maker.
4. If you can’t be kind, at least have the decency to be vague.
5. If you lend someone $20 and never see that person again, it was probably worth it.
6. Never put both feet in your mouth at the same time, because then you won’t have a leg to stand on.
7. Nobody cares if you can’t dance well. Just get up and dance.
8. Birthdays are good for you. The more you have, the longer you live.
9. You may be only one person in the world, but you may also be the world to one person.
10. A truly happy person is one who can enjoy the scenery on a detour.
Should you require any further information or wish to discuss any of the aforementioned, please do not hesitate to come back to me. Further, we welcome any and all feedback and/ or constructive criticism. If there is something that you feel that we can do better for you, please let me know soonest.
Best wishes
John