Minimum Wages for Domestic Workers Increased

a5_bThis year’s new minimum wages for all domestic workers are set out in the table at the end of this article.

Who is covered?

  • All domestic workers in South Africa working in a private household
  • People employed by employment services
  • Independent contractors who are doing domestic work
  • A person doing gardening in a private home
  • People who look after children, sick or old people and people with disabilities in a private home
  • A person driving for the household

But excluding

  • Domestic workers employed on farms
  • Domestic workers employed in activities covered by another sectoral determination or bargaining council agreement (such as contract cleaning workers).

Are you in Area A or Area B?

Area A includes most major metropolitan areas; Area B is all other areas.   See the full lists on the Department of Labour website http://www.labour.gov.za/DOL/downloads/legislation/sectoral-determinations/basic-conditions-of-employment/domesticwages2016_2017.pdf

a5

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)

Posted in Finance | Tagged , , | Comments Off on Minimum Wages for Domestic Workers Increased

Mandatory Audit Firm Rotation is in the News – Will it Apply to You?

a4_bThere have been many articles in the financial press over mandatory audit firm rotation (MAFR). This followed an announcement by the Independent Regulatory Board for Auditors (IRBA) that they intend to implement MAFR in South Africa.

MAFR is intended to strengthen auditor independence to enhance audit quality. There is no universal acceptance or rejection of MAFR, and it has been controversial in some of the countries where it has been introduced, including countries that have introduced it only to have it repealed later; hence the heated nature of some of the discussions and articles.

Currently, the IRBA has initiated a public consultation process (due to end on 20 January 2017) on its plan to introduce MAFR in 2023 for listed companies only. These JSE companies will have to rotate auditors every ten years.

Thus, it is at least several years off and, although media reports led many small companies to worry that they would be caught in the net, it will in fact only impact listed entities.

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)

Posted in Finance | Tagged , , | Comments Off on Mandatory Audit Firm Rotation is in the News – Will it Apply to You?

Don’t Miss Your Deadline for Employment Equity Reports

a3_bFailure by “designated” employers to lodge their employment equity reports on time risks severe penalties, with first offenders risking a fine of the greater of R1,5m or 2% of turnover (increasing to the greater of R2,7m or 10% of turnover for serial offenders).

Lack of enforcement in the past (apart from a few high-profile exceptions) has perhaps lulled non-compliant employers into a false sense of security but the Labour Minister has threatened a major crackdown and if you missed the 3 October 2016 deadline for manual/postal submission, you would be well advised to remedy that immediately.

Follow the process for electronic submission by the online deadline of Sunday 15 January 2017.  Go to the Department’s “Employment Equity Online Reporting for 2016” https://ee.labour.gov.za/dmiso/ page for details.

Must you report?

Reports must be submitted by all employers who fall into either of these categories –

  • All employers with 50 or more employees or
  • Employers with fewer than 50 employees who are designated in terms of the turnover threshold applicable as per the following table –

a3Getting this wrong could cost you dearly.  Seek advice in any doubt.

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)

Posted in Finance | Tagged , , | Comments Off on Don’t Miss Your Deadline for Employment Equity Reports

Beware of Trump’s Victory – Hard Economic Times Loom for SA

a2_bDonald Trump will soon be the 45th President of the United States. So far he is still threatening to implement his populist campaign promises (e.g. partially repeal Obamacare, tear up trade agreements and deport 11 million illegal immigrants) and has appointed a hard-line conservative to a senior position in the White House.

The American economy and how South Africa will fare

The most critical issue for us is the economy. So far, it does not look good. Trump has promised the US corporate tax cuts and a massive infrastructure program. Global markets are worried about this, particularly emerging markets, like South Africa. These programs will see the US deficit increase from the current 80% of GDP to well over 100%.

US long term interest rates have sharply spiked upwards since Trump won. The well-known economist Henry Kaufman has predicted that the thirty five year bull market for low long term interest rates is over. This is because Trump’s policies threaten to revive inflation in the United States which will push up interest rates to dampen inflationary expectations. In turn, this will encourage investors to reduce their exposure to higher risk emerging market bonds, resulting in a sell-off of emerging currencies – to date the Rand has lost more than 8% to the US$.

To protect their currencies, emerging markets will raise interest rates which will reduce the potential for economic growth. This is not good news for South Africa as our economy will only grow 0.5% this year and if this is reduced in future years, we face more tax increases, lower employment and social unrest.

What about commodities?

The stimulus package will initially benefit commodities such as iron ore and copper. If the package translates into economic growth, this will help South Africa’s major commodities such as platinum. So far platinum has dropped since Trump’s election, indicating that US economic growth beyond the stimulus package may be low. Gold, our other major commodity export, has also dropped as rising interest rates dampen demand.

Protectionism

Trump has also promised to repeal free trade agreements, heralding a return to the economic nationalism of the 1930’s. Our economy is an open one and has benefited from lower tariffs, whilst growing protectionism will reduce the prospect of economic growth.

So what?  And will it actually happen?

Difficult times since the global financial crisis of 2008/9 have undermined the post Second World War economic consensus which has bought prosperity to the world. The problem with rising protectionism is that it does not bring economic prosperity but instead increases the potential for populism, which is already a rising trend globally.  

Despite this, there were similar gloomy forecasts when George Bush was elected in 2000. Bush turned out to be positive for the African continent as he launched a successful crusade to fight AIDS and encouraged more open trade with the USA.

Remember also that power is institutionalised in the United States and Trump as President could well be prevented from introducing many of his proposed controversial initiatives.

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)

Posted in Economy | Tagged , , | Comments Off on Beware of Trump’s Victory – Hard Economic Times Loom for SA

Directors Don’t Like Goodbyes

a1_b“Parting is such sweet sorrow” (Shakespeare)

One of the predicted negatives from the Companies Act (the Act) and the King Codes was it would be difficult to find directors. The Act and King Codes put extensive liabilities on directors, encouraged annual appraisal of directors, term limits for directors and recommended strong codes of conduct to ensure directors fulfilled their fiduciary roles.

Non-executive directors seemed particularly vulnerable as they are not part of day-to-day operations, have to wade through extensive board packs before each meeting and attract the same liabilities as executive directors.

It thus seems intuitive that directors would be reluctant to serve with the introduction of all these governance measures.

The predictions were wrong – directors are staying put

Research done in the United States contradicts this and shows that directors are keen to remain in office for as long as possible. It seems the prestige and access to high-power networks outweighs the negatives.

Directors in America feel more than one in three directors should be replaced but the research shows that only 15% of directors were appointed in the last two years.

Which directors should you replace?

  • The first category is directors who arrive at meetings unprepared – these reportedly account for 25% of boards of directors.
  • Second is the one upmanship category. They always have to show up other members leading to dysfunctional boards.
  • Next come those who don’t speak up. Many of these feel the chief executive (CEO) should go but don’t say a word about it.
  • Then there are the over-controlling CEOs who are afraid of board oversight and divide and rule the members of the board. In similar vein, CEOs who become Chairperson smother the new CEO as they believe only they can effectively run the company.
  • Finally, there is the “old guard” who believe their experience is vital to the board but, over time, lose the ability to think independently and to voice contrary opinions.

You have to question just how effective the governance is in these organisations. Correctly applied, appraisals, strict enforcement of term limits and codes of conduct should weed these categories out.

It would appear that directors agree that weaker members should be replaced, but they do not see themselves as being a weak link – it is always the other director who should go.

It is important that governance is not just a box-ticking exercise. There is a strong argument that new blood brings new energy and ideas to a board of directors. Jack Welch, the long time CEO of General Electric, maintained that getting rid of non-performers greatly enhanced the organisation.

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)

Posted in Business | Tagged , , | Comments Off on Directors Don’t Like Goodbyes

Inflation’s different effects on different income groups – The danger for South Africa

a5_bEach month Statistics SA releases the inflation figure (CPI). Currently it is 5.9% which is a considerable improvement on February’s 7%.

What is interesting is the CPI figure is a composite of five quintiles of income groups – from the poor to the affluent.

 What do the quintiles show?

They show that for the wealthy the CPI is 5.8% but for the poor the figure is 8%. Effectively the poorer sections of the community are far more exposed to inflation. The main culprit is food prices which are increasing by 11.3%. This has a greater relative impact on the poor than the more wealthy.

Perhaps this helps to explain the rising tide of service delivery protests and the general discontent the country is facing.

 Inequality is increasing, and that’s dangerous

We know that South Africa is one of the most unequal societies in the world and in the medium to long term this is unsustainable. Intuitively, the inflation figures show that inequality is not decreasing but continues to rise.

Whilst we speculate about the various political machinations and student protests that daily hog the headlines, let’s not forget that failing to address inequality will come back to haunt us all.

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)

Posted in Finance | Tagged , , | Comments Off on Inflation’s different effects on different income groups – The danger for South Africa

The special voluntary disclosure programme begins – What’s changed?

a4_bWe recently discussed the Special VDP which lets non-compliant taxpayers voluntarily disclose offshore assets and income in order to regularise both their tax and exchange control affairs.  As promised, here is an update for you on current changes to the SVDP. Please note that the final amendment Bill has not at date of writing been passed by Parliament, so it is possible there will be some further changes.  We’ll keep you advised.

The main changes

  1. The closing date has been extended. Originally it was from 1 October 2016 to 31 March 2017. The closing date is now 30 June 2017.
  2. The original intention was that seed capital and investment profits and/or losses would be separately worked out. Now there will be one combined calculation.
  3. The amount will be determined as 50% of the highest value of all undeclared assets between 1 March 2010 and 28 February 2015 (i.e. a valuation must be done for each of the 5 years). It is to be converted into local currency at the closing foreign exchange rate on 28 February of the relevant year when the highest value was achieved.
  4. The “undeclared income that originally gave rise to the assets” above will be exempt from income tax, estate duty and donations tax. Future income on these assets will be taxed.
  5. Other taxes – VAT, PAYE, UIF and SDL are not included in the special VDP and taxpayers will remain liable for any such taxes which will have to be dealt with under the normal VDP process.
  6. Taxpayers who disposed of offshore assets before 1 March 2010 may apply for special VDP relief.

As you can see this is a complicated matter and it is disappointing that the Special VDP has opened without the enabling legislation in place.  If you think any of this may apply to you, seek expert advice on this highly sensitive topic.

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)

Posted in Finance | Tagged , | Comments Off on The special voluntary disclosure programme begins – What’s changed?

Are you struggling to get your tax refund?

a3_bThere is a feeling that taxpayers are getting fed up over the amount of tax they have to pay. Add to this the adverse publicity SARS has received as one of the focal points of the current political struggles and the string of suspensions/dismissals of senior SARS officials.

Despite this, statistics for the months April to July show that government finances are on track to deliver on the Budget outlined by the Finance Minister in February. True, collections are a little down but this is more than offset by lower government spending.

 Tax refund delays – what’s going on?

One of the cornerstones of the efficient systems run by SARS is the speed at which tax refunds are paid – normally 48 hours after an assessment is made or a verification process is completed. Yet there is a steady stream of complaints from taxpayers and the financial press of frustrating delays experienced by taxpayers due a refund.

Taxpayers due refunds are finding themselves subject to verification processes which is standard. What frequently happens is a taxpayer being asked to personally go to a SARS office with their FICA and banking details. Many are being asked to do this more than once and discovering there is still no tax refund. Tax practitioners are also finding that their clients have been placed on “Special Stoppers” and neither they nor the client are informed. In many instances the frustration is exasperated by unclear or a total lack of communication and clarification from SARS.

SARS has increased their controls over refunds due to increasing criminal activity and the high amount of fraud taking place. They have been ambivalent, though, in their explanation for the actual refund delays – on the one hand admitting there is a problem but then stating that these delays relate to 5% of tax submissions and taxpayers must expect delays.

 Some light at the end of the tunnel – perhaps

SARS has been promising an updated Tax Service Charter which hopefully will be released soon and will address this issue. There is a proposal before Parliament that the Minister may direct the Tax Ombud to investigate “systemic issues” relating to service.

In the meantime, taxpayers suffer the cash flow consequences. This is particularly severe on small businesses and individual taxpayers and addressing fraud without collateral damage is becoming a matter of desperate urgency.

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)

Posted in Tax | Tagged , , | Comments Off on Are you struggling to get your tax refund?

When your lease isn’t a “lease” – Beware, the National Credit Act’s protections don’t always apply

a2_b“In effect, [the High Court] held that the particular lease was not a lease. This may sound like a fragment of Alice in Wonderland. If that is so, it is because the [National Credit] Act itself could have been written by Lewis Carroll so peculiar are some of its provisions” (extract from Supreme Court of Appeal judgment below)

If you are about to enter into a rental or lease agreement for a moveable asset, such as a printer, be sure you know how the National Credit Agreement Act (NCA) treats such agreements. The trap here is that a lease isn’t always a “lease” for the purposes of the Act.

The implications

The NCA aims to promote fair and responsible lending practices to consumers when they enter into credit agreements. It covers most leases, mortgages, instalment sales, credit cards, suretyships and other similar methods of borrowing, and provides strong protections for credit consumers.

When you enter into an agreement which is covered by the NCA, you can generally feel confident that you won’t have a loan shark to deal with.

However, if the agreement is not covered by the NCA, then these protections fall away.

 For example…..

An experienced and financially astute business owner tells of his disastrous experience when entering into a rental agreement for a photocopier. The charges seemed reasonable but the agreement was complex, in very small print and difficult to understand. He was, he says, persuaded by the salesman to sign the agreement which he did without reading and understanding its terms. After several months, the business decided to terminate the agreement. The owner discovered he had entered unknowingly into 2 agreements and the finance house wanted R15,000 on a machine which cost R7,500 new. This after the finance company had already got the photocopier back!

When the owner sought the protection of the NCA, he got a shock. The finance house was indifferent to his arguments about the NCA. He then learnt of a 2013  Supreme Court of Appeal judgment to the effect that per the definition of “lease” in the NCA, only agreements in which ownership passes at the end of the agreement are covered by the NCA. Although the businessman believed that ownership of the photocopier would somehow pass to his business eventually, the terms of the agreements specifically provided to the contrary – he therefore had no NCA protection and was liable for the R15,000.  He might perhaps have had better luck trying for protection under the Consumer Protection Act, which does apply to agreements of this nature, but it wouldn’t have been easy.

If you enter into a credit agreement and it is hard to follow, take a step back and ask questions. If you still have doubts speak to your accountant. Don’t lose out like this business owner did!

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)

Posted in Property | Tagged , , | Comments Off on When your lease isn’t a “lease” – Beware, the National Credit Act’s protections don’t always apply

Are we headed for junk status or only tax increases?

a1_b“We have to show that we will stick to our undertakings on consolidation, but on the other hand we have got to be very mindful that fiscal consolidation in the absence of growth does damage growth further.”  (Finance Minister Pravin Gordhan in his Medium Term Budget Statement)

Firstly, what is the Medium Term Budget Statement (MTBS)?  It’s a three year outlook by the Treasury of government finances and an exercise in transparency in governance.  Whereas the February Budget each year is Government’s actual annual financial plan, the MTBS is an interim statement that highlights government priorities and spending plans, an advance warning if you like of what we can expect in the future.

It’s particularly important this year because this is an unprecedented time for the country as we face a ratings downgrade from the ratings agencies, low economic growth and the concerns and uncertainties arising from the Minister of Finance having been charged with fraud.

A ratings downgrade to junk status (currently we are one notch above junk) will increase the cost of debt and will almost certainly lead to a downward spiral of the Rand.

 What do the rating agencies say?

There are three major agencies:

  • S&P wants to see ongoing fiscal consolidation (curbing the country’s debt level) and an end to political turmoil
  • Fitch is concerned that the current political ructions could loosen Treasury’s grip on fiscal consolidation
  • Moody are the most positive of the rating agencies. South Africa has a robust democracy, fiscal stability is working and better economic growth prospects are ahead.

The agencies would also like to see impediments to economic growth, such as restrictive labour provisions, reformed.

 Our economy: a report card

Since 2009, we have faced difficult times as commodity prices have plunged. This has limited GDP growth at a time when the country is spreading the net of welfare payments and has faced electricity shortages.

This has led to rising government debt, tax increases and a commitment by Treasury to control government spend.

At present government expenditure is 34% of GDP versus 31% for emerging economies. Tax collections are 30% of GDP whilst the norm is 27%. Finally, government debt to GDP is 46% and rising – the accepted figure is below 50%.

So, Minister Gordhan faces stern challenges.

The Minister’s tone and speech were different from previous interim budgets. He spoke of the nation pulling together to create a more just, transparent society which addresses inequality and allows equal opportunity.

 The key statistics

  • Revenue (taxes we pay) will be R23 billion below budget for this year. This will increase the deficit to 3.4% of GDP (3.2% was budgeted). The Minister forecasts this will drop to 2.5% in the budget period
  • To cover the revenue shortfalls taxes will be raised by R43 billion in the next two years of which R28 billion will be implemented next year. The proposed carbon and sugar taxes will almost certainly be in the mix of tax increases
  • The ceiling for expenditure will reduce by R10 billion next year and a further R16 billion in the next two years. In prior years Treasury have introduced a level (ceiling) above which spend could not go
  • Inflation is forecast at 6.1% this year, 6% next year and falling to 5.9% in the final year
  • Government debt to GDP will be 45.8% this year and will stabilise at just below 48% in three years
  • GDP will grow 0.5% this year, 1.3% next year and 2% in 2019
  • Financial assistance to students will be an extra R17 billion in the forecast period
  • The freeze on government posts will remain. This is estimated to reduce government employment by 25,000 in the three year outlook
  • Ongoing supply chain measures to improve efficiencies and savings.

In a difficult economic climate, the Minister showed his commitment to fiscal prudence. This is necessary for the economy but is also important for the rating agencies.

The junk status danger: Keeping the ratings agencies happy

As noted above, the agencies want to see measures to grow the economy and reduce political turmoil.

The Minister announced:

  • The boards of SAA and the Post Office had been reconfigured to strengthen governance and oversight.
  • The government intends to bring policy certainty to telecommunications and tourism.
  • Progress has been made with labour relations as shown by a drop in strike activity following negotiations with union leaders.
  • Ongoing supply chain savings following the introduction of a centralised procurement data base. Negotiations are under way with key suppliers to save R25 billion a year by 2019.
  • Communications with CEOs has proven successful with R1.5 billion made available to grow small business. Ultimately, the goal is to get the private sector to start investing in the economy – private sector investment is currently very low.
  • R45 billion has been set aside for industrialisation and sustainable resource management.
  • R58 billion will be invested by Independent Power Producers for new energy projects which will add 2 354 MW to the power grid.
  • Over R900 billion set aside for infrastructural projects.

These will remove impediments to growth in the next few years.

 So how will all this affect us?

  • Taxes will definitely go up. We will only learn the specifics of what taxes, and how, in the Budget Speech next February.
  • Our household budgets will come under increasing strain, particularly if we sink to junk status. If that happens, prepare for a jump in interest rates, a weaker Rand, higher inflation and price increases.
  • Overall, however, the Minister has lived up to the quote above and there is hope in that. The currency has (at time of writing) maintained its levels indicating that overseas and local investors are not dissatisfied with the budget.

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)

Posted in Tax | Tagged , , | Comments Off on Are we headed for junk status or only tax increases?