Stop the World I Want To Get Off

Email marketing“Join the slow e-mail movement! Read your mail just twice each day. Recapture your life’s time and relearn to dream.” (Dan Russell, IBM Researcher)

We live in times of immediate responses and instant gratification. A survey done on emails showed that people check their emails up to eighteen times per hour.

Apart from emails we are distracted by smartphones which send us endless messages from Facebook, Instagram, WhatsApp, Twitter and so on. Not forgetting you can keep pro-actively checking these media as well.

Picture John Twit who has to analyse and report on a new brand strategy which he has just received from the firm’s advertising agency. His boss wants the report in three hours so he can give feedback at a Board meeting.

John starts going through the report but continues to frequently check his emails. Many of them are urgent and require a swift response. As the three hour deadline looms, John gets increasingly stressed and finds it difficult to focus on the report. By the time he emails it to his boss, he is exhausted and mentally drained.

What’s happening to John?

The human brain is wired to focus on only one important task at a time. So when John tries to respond to urgent emails whilst working on his report, he struggles to focus on the brand report.

Also, every time he switches from emails back to his report, he has to reset his brain to focus on the report. John feels mounting frustration as the deadline for the report looms and he faces ongoing pressure from the emails coming through.

Research shows…

The New York Times did a study on 124 people. Half the people were allowed to only view their emails three times a day. The other half were allowed to check their emails with no limit placed on this process.

Within a week the people who looked at their emails three times a day showed markedly lower stress levels. Other research revealed that people communicated more with fellow staff members and remained more focused when they reduced the number of times they checked emails.

Productivity has been sluggish for more than a decade, so it is doubtful that the trend of responding instantly to emails has had a major economic effect. In fact you will probably find that many of the “urgent” emails have been resolved by the time they are opened several hours later.

So… 

Breaking habits is never easy to do but checking your emails only two or three times a day will be good for productivity and ultimately your mental health.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Taxpayers: Why YOU Should Participate in this Local Survey by SAICA

a2 Online_Survey__The cost of tax compliance has recently been in the spotlight as SARS’ revenues have fallen and pressure is mounting on taxpayers to spend even more time on tax compliance. Reducing these costs will have beneficial effects on the economy:

  • As costs of compliance fall SARS revenues should increase, lessening future tax hikes
  • Low tax compliance costs will encourage investment in South Africa
  • It will allow business to focus more on their business which in turn should stimulate job growth.

It would be extremely useful to see what South Africans (individuals, small and medium-sized businesses (SMEs) and larger corporates) think about tax compliance in terms of the time involved and costs.  SAICA has initiated a survey on this important topic.

There are three major cost components to tax compliance:

  1. Internal costs of your staff completing tax returns, making payments and responding to SARS queries;
  2. Costs of using tax professionals to assist with the above processes; and
  3. Other costs such as travel claims and using software to compile tax returns.

Quantifying these costs will enable SAICA to get a composite picture of time spent and tax compliance costs, and to use this data to analyse how to drive these costs down. With statistically valid data, SAICA can lobby government to take action to reduce compliance time and costs.

Of particular interest is that this survey will form a baseline against which future measures can be scientifically evaluated as to how effective they are.

Help reduce tax compliance time and costs

Why not let your voice be heard and participate in the survey? Read the “Participant Information Sheet” and find the link for the survey on SAICA’s website here.

On page 2 of the letter click on the relevant category:

  • Individual;
  • SME; or
  • Large corporate.

Make your voice heard and ensure that there is a statistically valid sample so that concrete measures can be taken to reduce tax compliance time and costs.

Please note that the closing date to complete the survey is March 30th.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Allowable Stock Deductions: Hopefully Less Tax, Less Admin

A3-ThinkstockPhotos-521139490-2121x1414George, the CEO of a company, was driving with his Finance Director, James, to a meeting. George had learned of a recent Tax Court case around stock values and was curious to know more.

“James what does this stock case mean?” George asked.

“Firstly, stock valuation has long been a bone of contention with SARS which has led to endless work, debate and argument with SARS. This tax case reconciles the company’s and SARS’ stock valuations and thus brings clarity and certainty” James replied.

“That’s a positive but how does it work, I’m curious” said George.

“It certainly is a positive” James answered. “Well, as you know the value of stock at year end comes off cost of sales and the lower your stock value the less tax you pay.

If your sales are, say, R200 and
Cost of sales before closing stock is R100
and your closing stock is R20 then
Cost of sales is (R100-R20) R80 and
You therefore add (R200-R80) R120 to your taxable income
But if closing stock was R10, then you would add R110 to your taxable income.

In reality this can have a large impact on the tax you pay. In the case we are talking about, the amount involved was more than R100 million.”

Stock valuation

“Ok so far. Now carry on” said George

“How you value stock is clearly very important. The Accounting profession values it as the lower of cost and net realisable value (NRV). So whichever is the lower of the two methods is accepted as the stock value.”

“Cost is easy to determine – whatever you pay for the stock. NRV is more complex and is made up of any extra costs to getting your stock in a saleable condition less the selling price.”

“I should point out” continued James “that SARS agrees on cost but the Income Tax Act does not mention NRV but speaks of a diminution in value. Tellingly SARS is given discretion as to what it considers ‘just and reasonable’ in deciding what a diminution in value means. ”

“Let’s look at an example in measuring NRV. Say you sell raincoats for R75 and they cost R50 each. However, your supplier delivered them late and you have to keep them in stock for six months until the next rainy season.”

“They will then need to be dry-cleaned at a cost of R10, the cost to get them to shops is R7 and you will now need to incentivise shop assistants to sell the raincoats at a cost of R12.”

“These costs (R10+R7+R12) are deducted from the selling price of R75 making NRV R46. As this is less than the cost of R50, this becomes your stock cost.”

What’s IFRS and why is it important?

“Great” said George “the cost has dropped by R4 a raincoat but why is everyone talking about ‘IFRS’?”

“International Financial Reporting Standards (IFRS) is a globally accepted methodology of compiling financial statements” continued James. “What is important here is IFRS adopts a systematic approach to determining NRV.”

“The Court was impressed with this approach which gave a credible methodology in reaching NRV. As mentioned SARS has discretion in accepting or rejecting NRV. The Court ruled that the IFRS approach is to be accepted by SARS.”

“So” said George “the days of endless debate and argument between business and SARS on stock valuation are over. Business will pay less tax and there will be much less administration time.”

“Exactly” said James. “But we do need to bear in mind that this judgment, as persuasive as it is, isn’t actually binding in other cases unless a higher court ratifies it. Also of course SARS could appeal.”

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Submit Your Budget 2018 Tips!

A4 bigstock-167576966The Minister of Finance makes his Budget Speech on 21 February and would like to hear your tips for the Budget. To submit your suggestions go to “Budget Tips” on the National Treasury website.

Our 2018 Budget is one of the most important since 1994 and will almost certainly include substantial tax increases, so make sure you get your views in.

Remember the Minister does read your tips and usually mentions some of them in his Budget Speech.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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The Drought Affects Us All

Day Zero is closer than ever and may even occur sooner than expected as on the 21ST of April 2018. This will not only influence the Western Cape, but South Africa as a whole. With the 50-litres-per-day-for-the-next-150-days alarms going off, will the looming ‘Day Zero’ affect those beyond the Western Cape?

Water is a daily need – cooking, drinking, hygiene – and the need for it is far greater than what the city has left. Water meters are being monitored, swimming pools are being emptied, and monthly tariffs have increased to ensure that households use water within the set restrictions. The rest of the country will feel the water crisis pinch.

  • Drought creates a socio-economic effect. The deficit between water demand and water supply worsens, forcing businesses to cut down drastically during production. This contributes to the already existing socio-economic factor of unemployment with more businesses trimming overhead costs to allow them to remain profitable. Unemployment in the Western Cape will have a ripple effect on the rest of the country, with people relocating in search of jobs elsewhere.
  • Health risks increase as the greater population adjusts to the limited water use for sanitary purposes. One of the biggest perils is the sewerage system coming to a standstill.
  • Because Cape Town is the leading exporter of wine, fruit, vegetables and wheat, the prices of these commodities are bound to increase nationally in order for the agricultural sector to remain profitable despite lower quantities in production.
  • Cape Town is the country’s second economic hub. Because of the water crisis, Cape Town is a high risk for incoming capital. Abroad corporations who have built business relationships with the country are left to look elsewhere for those who will meet their production needs.
  • There is increased pressure on the national government to provide an infrastructure that ensures that water is “protected, used, developed, conserved, managed and controlled in a sustainable and equitable manner, for the benefit of all persons” (Water Act of 1998).

Tourists are urged to be as cautious as the city’s residents by choosing to stay in accommodation facilities that have water-saving measures in place, using cups when brushing teeth instead of letting the tap run, and taking shorter showers.

Dam levels are critically low, and when storage reaches 13.5%, Cape Town will turn off most taps, leaving only vital services with access to water. Below is a list of dam levels of each province as of 22 January 2018:

Province Dam levels in %
Western Cape 25.3 %
Gauteng 94.1 %
Eastern Cape 58.9 %
Free State 65.0 %
KwaZulu-Natal 50.6 %
Limpopo 65.3 %
Mpumalanga 76.9 %
Northern Cape 75.6 %
North West 67.0 %

Day Zero is expected to hit on 11 May 2018, and as over consumption continues excessively, the day draws closer and closer.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Sugar Tax: Is It Good For Us?

shutterstock_378367333_0“This feels like a victory for Britain’s children” (celebrity chef Jamie Oliver commenting on news that a sugary drinks levy will be introduced in the UK in 2018) 

Tax increases are on the way and Treasury has signalled that a sugar tax (more correctly, a “Health Promotion Levy”) will be levied from 1 April 2018. As with all new taxes, emotions have been running high.

Much of the debate centres on whether the tax is simply a revenue-generating exercise or whether it will bring medium to long term health benefits to South Africa.

Recent tax increases have come mainly from an increase in the personal income tax rate and the fuel levy. Spreading the tax net wider will help Treasury to raise additional revenue.

The tax will be levied at 2.1 cents per gram of sugar content that exceeds 4 grams per 100 ml.

The passing of the legislation follows exhaustive negotiations, and public hearings which included NEDLAC (National Economic Development and Labour Council).

How will prices rise and what does the sugar industry say? 

The proposed tax is estimated to add up to 11% to the cost of sweetened soft drinks such as Coca-Cola. This is in contrast to the initial proposal which was 20%, plus items such as 100% pure fruit juice have now been excluded.

The sugar industry, which opposed the levy, has been under pressure since the turn of the century and 20,000 jobs have been lost, with the industry saying now that another 3,129 jobs will be under immediate threat and 20,000 more in 5 to 7 years. There have also been predictions that companies like Coca-Cola will cut investment leading to further job cuts.

What does the health industry say? 

  • A sugar tax is one of the cornerstones of the Department of Health’s determination to reduce non-communicable diseases (NCDs) such as obesity, diabetes and heart disease.

The Department sees a clear link between NCDs and sugar consumption, although this supposed correlation is strongly disputed by opponents of the levy.

  • NCDs are the leading cause of death in low to middle income countries.
  • South Africa has the highest incidence of obesity in Africa.
  • We are among the top ten consumers of soft drinks in the world.
  • Diabetes alone killed 25,000 people in 2015, whilst diabetes, strokes, heart diseases and other obesity related conditions cause 55% of deaths in South Africa.
  • India, Portugal, Saudi Arabia and Thailand have introduced taxes to combat NCDs in 2017. More than 30 countries have sugar tax legislation in progress.
  • Key research in these countries is that there were minimal job losses (Mexico) and it reduced consumption of sugar drinks by 10%.

In conclusion…

Treasury forecasts an additional R1bn to R1.5bn in annual revenue from the levy.

Licensing and registration of manufacturers of sugary beverages will take place from February 2018.

On balance the consensus seems to be that a sugar-sweetened beverages tax will bring in revenue to the fiscus (potentially limiting income tax increases) and is likely to have health benefits. Parliament is aware of potential retrenchments and will be monitoring the impact of the tax on the sugar industry.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Bitcoin: Is A Bubble Driving Up The Price?

40CD75C700000578-4543488-image-a-20_1495758052657“A bubble is an economic cycle characterized by rapid escalation of asset prices followed by — a massive selloff.” (Investopedia definition) 

You come home from work one day and see your next door neighbour off-loading an expensive flat-screen T.V. He tells you he has become wealthy from his Bitcoin holdings. You gotta buy some he tells you the price is going crazy.

Rational thought is gone – you rush inside and Google Bitcoin. When you discover that Bitcoin is the most Googled word in the world, surpassing even the Kardashians, you are convinced you are on the road to riches.

Since November 2016 the value of a Bitcoin has risen from $800 to over $15,000 at time of writing. Bitcoin now trades on the Chicago Board Options Exchange and the Chicago Mercantile Exchange. These are futures markets and have contributed to the fast rising price of Bitcoin. As Bitcoin has come to get more market acceptance, so interest in this cryptocurrency has rapidly grown.  

One of the reasons why the value has grown so quickly is there can only be twenty one million Bitcoins in existence. As the price goes up, the investors  hold onto them, anticipating further price rises. This supply shortage further drives up the price.

At some stage a herd mentality takes over, fuelled by greed and the price goes through the roof. In this stampede no one stops to think – they have to jump in before the price rises even further.

With all bubbles, at some point the price defies belief. Once this happens the losses mount as fast as the price once rose until the asset becomes worthless.

But is it a bubble or not?

The hard fact is that no one knows for sure.  If it is a bubble and you invest now you could lose a fortune.  If it isn’t and you don’t invest, you could lose out on a potential fortune.

“Hindsight” of course “is 20/20” but by then it’s too late to do anything about it, so the best advice at this stage is this – be guided not by the herd mentality we talked about earlier but by your own research.  If you do invest, the only prudent thing to do is to use money you can afford to lose.

All we can say for sure is Bitcoin is starting to exhibit all the characteristics of a bubble and that at some stage there is the risk the price will collapse. So perhaps if you feel the urge to buy Bitcoins, resist the urge to Google “how to buy Bitcoins” and instead take a deep breath and go and watch the Kardashians!

If you are still not convinced, consider what happened to Sir Isaac Newton, an intellectual giant and one of the fathers of modern science. He initially bought into the South Sea Company and as prices rapidly rose, he sensed a bubble and sold out, making a very good profit. But prices continued to rise at a dizzying pace and he reinvested just in time to witness the collapse of the company. Newton was ruined by the South Sea Bubble.

The current situation with Bitcoin does not invalidate the concept of a digital currency which has the potential to do what banks do – be a credible third party between a buyer and seller and guarantee payment when the conditions of the contract are met. The big difference is that cryptocurrency uses blockchain technology and is much cheaper. It’s here to stay.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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How Efficient is SARS Globally?

1495293869535A recent World Bank and Price Waterhouse Coopers survey, amongst other things, ranks companies in 190 countries in terms of time taken to prepare and file tax returns. South Africa performs above average against its global peers. We improved by one place from 47th last year to 46th.

The survey has been going since 2004 and one of its main findings is how technology has improved the time taken for companies to complete all tax returns – this includes all taxes such as Income Tax, Workman’s Compensation, VAT, PAYE etc.

In 2016, the average time taken improved by 5 hours to 240 hours – South Africa takes 210 hours. In another measurement on the average number of payments companies make per year, the average is 24 payments whereas in South Africa the number is 14.

In terms of other measurements such as time taken for a VAT refund, we perform close to the average. It takes 26.5 weeks to get a VAT refund locally against 27.8 weeks globally.

A recommendation and a warning

In terms of tax audits we lag behind the rest of the world. One recommendation by the survey is that countries follow the example set by Mexico which analyses data in real time, making it faster to complete the audit process.

One warning from the survey is that new taxes are being globally introduced to widen the collection net and these could increase the time taken to file returns. In South Africa where carbon and sugar taxes will bring more complexity and administration time to business, one hopes that the final legislation will be simplified as much as possible.

Still for all the frustrations we experience, South Africa appears to not be doing too badly.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Directors: Watch Your Liquidity and Solvency!

000antNothing is more demoralising than running into financial difficulties. Suddenly all your energies are focussed on survival rather than growing the business. The fun goes out of the organisation, rumours of retrenchment flourish and if management aren’t careful, the rumours can become self-fulfilling.

The importance of liquidity and solvency ratios

Since the “new” Companies Act came into force, there has been a change of emphasis. The “old” Act considered the cornerstone of sustainability to be “capital adequacy” – acceptability amounted to your equity being positive (share capital plus retained profits).

Globalisation and technology have speeded up business cycles and have shifted modern thinking to liquidity and solvency as determinates of a company’s viability. The new Companies Act adopted this philosophy.

What are liquidity and solvency?

Liquidity measures the organisation’s ability to meet its short term liabilities over the next twelve months i.e. paying all creditors and any debt that is due in that period.

Solvency measures whether an organisation’s assets are greater than its liabilities over the next twelve months. If your liabilities exceed your assets then you usually have taken on too much debt or you are trading at a loss.

There are ratios that you can use to determine liquidity and solvency, but probably the best approach is a detailed cash flow that looks to at least the next twelve months – but usually for longer periods depending on how much confidence you place on the reasonable accuracy of the cash flows.

Part of the cash flow process is to consider all known risks and to measure the potential impact they will have on cash flow if the risks materialise. In this way you can plan for any contingencies and how you will respond to them. You can, for example, keep cash reserves to cover potential risks occurring.

Many best practice businesses do cash flows as part of their monthly financial procedures.

If the cash flows or ratios show the business is getting into cash difficulties, then you have time to react. This time is crucial as it is the difference between controlling the process or being controlled by it.

What the Act requires, and the risk of personal liability

In terms of the Companies Act, if it is likely that the company will not be able to meet its short term liabilities or will become insolvent in the subsequent six months, then the organisation needs to consider:

  • Going into insolvency if the situation is unsalvageable, or
  • Commencing business rescue proceedings.

Remember that directors risk personal liability if they could have foreseen financial losses but fail to initiate business rescue proceedings or declare bankruptcy.

The bottom line – be prudent

Keep yourself informed and ensure that you are checking that liquidity and solvency tests are being performed. Ask your accountant for advice at the first sign of trouble!

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Taxpayers: Good News in the Season of Good Cheer?

A5There are no important tax deadlines for December, so let’s look at some potentially great news for taxpayers.

Could the “pay now, argue later” principle be repealed?

The Davis Tax Committee (DTC) has recommended that taxpayers be given a Taxpayer Bill of Rights (TBOR). Some twelve years ago, SARS drafted its first Taxpayer Service Charter but this has never been issued in final form.

Not only will it align South Africa with best practices but it will improve trust between the taxpayer and SARS, which is essential to stopping the slide in taxpayer morality.

The DTC also points out that the tax system is subject to the Constitution. In this spirit, it makes recommendations that if adopted will make taxpayers happy, such as:

  • Taxpayers should only need to pay tax when any dispute has been impartially reviewed. This would do away with the “pay now, argue later” principle currently applied by SARS. This is anticipated to not only significantly improve taxpayers’ cash flows but also to bring about more fairness in the SARS/taxpayer relationship; and
  • More deadlines will be specified for SARS. Currently, for example, no time limit is set for the finalisation of a tax audit. This is unfair towards taxpayers, considering the length of time that SARS audits tend to take. The DTC recommends that the TBOR be enforceable on both taxpayers and SARS.

As it is the season of good cheer, let’s hope the TBOR gets adopted!

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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