Consumers: The Consumer Protection Ombud’s Power to Help You

A3_bIn 2015 the Consumer Goods and Services (CGS) Code of Conduct took effect. It sets out minimum standards for the CGS industry to observe when dealing with consumers. Failure to comply with the Code contravenes the Consumer Protection Act.

Thus, CGS businesses that were not already subject to regulation (such as the motor industry and financial services) fall under the ambit of the Code.

In addition, the Code accredited the Consumer Goods and Services Ombud as the official Ombud to enforce the Code by dealing with consumer goods complaints by consumers, and to investigate alleged contraventions by CGS businesses. These affected organisations are also obliged to register with the Ombud and to pay participation fees depending on turnover (nil if your turnover is under R1 million but rising to R250,000 for businesses with turnover exceeding R3 billion).

What does the Ombud do?

The Ombud steps in when disputes between consumers and suppliers of consumer goods and services cannot be settled by the parties. The Ombud provides mediation services to help resolve disputes using alternative dispute resolution (ADR) techniques. The service is free for consumers.

In the 2015/2016 year the Ombud took on 3,495 cases of which 2,192 were resolved or closed out (i.e. outside of the Ombud’s jurisdiction or the case was withdrawn etc) and 1,303 were still ongoing. It takes an average of 57 days to resolve a dispute.

In addition the Ombud can refer matters for investigation to the National Consumer Council where it finds trends that appear to be at odds with the principles of the Consumer Protection Act. Some examples of referrals for further investigation are:

  • Speculative financial software. This covers suppliers who promise consumers high returns if they trade on the stock exchange using the software
  • Orthopaedic pillows and mattresses which supposedly do not deliver the claimed results
  • A loan tracking service which is supposed to help people find loans but instead apparently signs up consumers for other products and services and charges them a fee.

The Ombud is providing a valuable service to consumers and is becoming better funded. Tell your staff about this free service if they get “taken” by an unscrupulous business. Also check you are paying your subscription if you are a business that falls within the ambit of the Ombud.

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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You and Budget 2017 Part 2: The New Tables

A2_bFor ease of reference please find below –

  • The new tax tables for individuals and trusts other than special trusts
  • The new tax tables for Small Business Corporations
  • The new transfer duty rates

Table1

Table2

Table3

Table4

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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You and Budget 2017: Tax Increases Are Now the Order of the Day

A1_bThis budget is one of the most anticipated for many years with many questions still needing answers:

  • How will the expected tax increases pan out?
  • Will the Minister of Finance and his deputy keep their jobs?
  • Will the budget incorporate “radical economic transformation” which has become the President’s mantra in the past few months?
  • How will the ratings agencies view the budget and do we now face a ratings downgrade?

The tax increases

The Minister needed to raise R28 billion in additional revenue which will come from:

  • Increasing the marginal income tax rate from 41% to 45%. The maximum threshold will be reached when your taxable income exceeds R1.5 million. This will affect just over 100,000 taxpayers and is expected to add R4.4 billion to tax collections.
  • Bracket creep will add R12.1 billion to tax revenue. “Bracket creep” means increasing marginal tax bands by less than inflation, thus giving the Treasury additional revenue and costing taxpayers more.
  • Increasing dividend tax from 15% to 20% – adding R6.8 billion tax revenue.
  • Increase in “sin” taxes and fuel levies – another R5.1 billion.
  • “Sugar tax” will be introduced sometime in 2017 depending on when the legislation is passed by Parliament. The proposed rate of tax has been reduced from 20% to approximately 11%.
  • Carbon tax has been on the cards for a while but looks unlikely to become effective until 2018.

In addition, the Voluntary Disclosure Program runs to 31 August. So far almost R4 billion in offshore assets has been disclosed and this will bring R600 million to the fiscus.

These increases should bring in more than R28 billion but Treasury is now nervous about the ability of SARS to continue to deliver increased revenue as it has done for years. In 2016/17 revenue collections are estimated to fall R27 billion short of target. Some ascribe this to the ructions in SARS which has seen the bulk of senior management departing but it is not possible to indefinitely increase revenue targets, particularly when the news is filled with stories about corruption. At some stage reality kicks in and that is happening now.

Treasury will now carefully need to rethink tax policy and that taxes like a VAT increase cannot be deferred much longer. Already consideration is being given to adding VAT to the fuel price (it is currently zero-rated).

The good news…

  • Transfer duty will now only apply to property sales of R900,001 or more (previously R750,001). This will give R400,000 back to taxpayers and will hopefully stimulate property sales to first-time and buy-to-let buyers.
  • R20 billion will be cut from government expenditure. No specifics were given but expenditure targets have generally been met.
  • 9 billion will be allocated to small business.
  • The tax free savings allowance has been raised from R30,000 to R33,000.
  • The Treasury and business cooperation has worked well so far and helped to avert a ratings downgrade. Business plans to offer one million apprenticeships to the youth over the next three years. In addition, R1.5 billion has been paid into a fund to assist small businesses.

This cooperation with business (add to this labour with the agreement on the minimum wage) does add a new dynamic into the economy. Minister Gordhan often spoke of a new social cohesion to help economic growth and this is evidence that this is beginning to show positive results.

  • Inflation will fall from 6.6% now to 5.7%.
  • GDP will grow 1.3% this year versus 0.4% last year.
  • The budget deficit will come in at 3.1% of GDP versus 3.2% this year.
  • An additional R5 billion has been set aside for student fees.

There are still perils out there

The sovereign debt of the country has risen over the past 8 years and now stands at 50.7% of GDP. If you add in the State entities (Eskom, SAA, Transnet etc) this rises to more than 60%. This translates to R169 billion interest being paid by the state – interest is the fastest growing expense in expenditure.

Perhaps more significantly, economic growth has stagnated. As can be seen above it is becoming more difficult to increase taxes and thus the way out of a growing budget stalemate is economic growth. Structural reforms are needed to kick start the economy but there seems to be little political will to do this.

The downgrade potential

Ratings agencies want to see financial discipline (which Minister Gordhan has again delivered), less political instability and a path to revive economic growth. Time will tell how the country can tackle the latter two problems.

The Budget is redistributive

62% of income tax will be paid by those with taxable incomes greater than R500,000. No one doubts the fairness of the wealthy paying more tax but the wealthy are being hammered – consider also dividend and capital gains taxes also rising. Tax revenues are starting to fall and there is every chance the wealthy will start looking at legitimate ways to reduce future tax liabilities.

“Radical economic transformation”

The Minister spoke of transformation more than fifty times. “Radical economic transformation” is the new policy the president has adopted. For this to reflect in the 2017/2018 numbers, it requires a complete shift in the way Treasury compiles the budget. As it came late in the year, Treasury did not have the time to respond to this paradigm shift. Thus, whilst the Minister spoke of “radical economic transformation” in reality the budget was a continuation of previous budgets.

Nevertheless he did deliver one or two home truths such as ““We need to transform in order to grow; we need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage”.

Minister Gordhan has again delivered a credible Budget. Clearly, also the time has come to take the necessary steps to grow the economy.

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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“Just Walk Out” – Amazon Is Revolutionising Grocery Shopping. How Will It Affect Us?

A3_bIn South Africa only about 10% of retail shopping is done online as shoppers still prefer to go to malls to do their shopping. The worst part of this is often the queuing when it comes to paying for your purchases. Pressure has been put on retailers to find ways to ease these long queues.

Amazon is piloting a product (“Amazon Go”) which stops all queuing – you put your goods into the trolley and when you’ve finished you walk out the store, get into your car and go home.

How does it work? Watch this video…

Amazon has adapted the technology for driverless cars to the grocery store environment. Consumers open an account with Amazon and download an app. At the store they swipe their smartphone on a scanner as they enter the store. In the store, sophisticated technology captures what you put and take out of your trolley (if you decide not to purchase an item, it takes it out of your grocery purchase list).  When you leave the store your Amazon account is debited with your purchases and you receive an online receipt.

Watch Amazon’s explanatory video (and read the FAQs) on its website.

Amazon plan to launch this in the first quarter of this year in the USA. Its sheer convenience will almost certainly make it a big hit with consumers. This means it will almost certainly be rolled out globally. It is difficult to know when it will reach South Africa but Amazon have a presence here.

Its impact (and “What about the workers?”)

Clearly large grocery outlets like Walmart will be affected and if it comes here so will Checkers, Pick n Pay and other grocers. The groundwork has been laid already – in September last year Pick n Pay started trialling a related concept in the form of self-service checkout tills.

A major attraction for retailers is that checkout staff and in-store packers will no longer be needed which is a substantial cost saving. The issue in South Africa is how will the country cope with more unemployment? The technology will almost certainly spread to warehouses and once again will involve sizeable staff reductions.

We are already seeing that business disruption technologies, such as Netflix, have a sizeable impact on consumers. It is extremely difficult to stop these technologies and strategies will need to evolve in South Africa to cushion the impact on less skilled workers.

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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Tax Ombud Now Has More Powers

A4_bThe Office of the Tax Ombud (“OTO”) was created in 2013 and despite initial doubts as to its role has carved a niche for itself and gained credibility as a result. Recent legislation has strengthened the OTO.

The Ombud was designed as a free service to taxpayers to assist them when there is poor service from SARS, or when taxpayers experience administrative or procedural issues with SARS.

How independent is the Ombud?

Initially, the Ombud was funded out of SARS’ budget and all staff were seconded from SARS. This created the perception that the Ombud was not an independent institution.

In January President Zuma approved legislation which permits the OTO to recruit its own staff and its budget has been moved from SARS to the Minister of Finance.

This new Act also extends the tenure of the Ombud from three to five years. This will allow the Ombud the time to leave his or her mark on the Office of the Ombud and thus should improve the calibre of future Ombuds.

The effect of Ombud findings

These are not binding on either SARS or the taxpayer. The recent legislation requires that the party not accepting the Ombud’s report has 30 days to explain to the Ombud why the findings will not be followed.

Apart from providing the OTO with information to help it review how effective its findings are, this explanation requirement will enhance the OTO because SARS and taxpayers will now carefully weigh up whether to reject the Ombud’s findings.

A concern with the OTO process is the lack of prescribed time periods for the various processes in resolving a complaint, but hopefully this will be addressed in the future.

The power of the Ombud has been further strengthened by allowing the OTO to launch investigations (with the permission of the Finance Minister) of systemic service, administrative or procedural issues. Again this increases the credibility of the Ombud and should be a valuable service to taxpayers.

A Bill of Rights and a Service Charter in the wind?

The Ombud has lobbied for an updated Taxpayers Bill of Rights and a SARS Service Charter which will provide improved transparency and clarity for both parties. To date this has not happened.

The OTO is beginning to provide taxpayers with a useful service. In 2014/2015, 75% of the cases taken on by the Ombud resulted in decisions in favour of the taxpayer. By 2015/2016 this had risen to 87%. The Ombud is providing a counterweight to the widespread powers that SARS has.

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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Developing Your Senior Staff: Let Them Run Meetings

A2_bOne underrated but important aspect of an organisation is its ability to run effective meetings. Problems are identified and strategies are put in place to chart a successful way into the future.

In smaller businesses invariably the most senior person (the owner or CEO) runs these meetings.

As business owner or CEO, it is well worth thinking about allowing your senior staff to conduct and lead these meetings.

Everyone benefits

Firstly, one of the key assets in a business is its people. Enabling them to learn an important skill will add to the depth of your staff. It will also give these managers credibility and respect within the organisation which enhances their commitment to the business.

Secondly, a business is more sustainable and profitable when management and staff act in unison. Getting leadership’s vision to filter all the way down the organisation is critical. Up-skilling your senior staff will add to this process and will spread your vision throughout the company.

As a CEO you are often more effective as a participant in a meeting, as not running allows you to be more focused. You can ensure the meeting sticks to significant matters by making critical interventions when necessary.

Finally, the fact that you can delegate important tasks fosters teamwork and gets buy-in from your staff.

Who to appoint

This is really a judgment call but clearly you should select people with development potential, good communicators who have empathy and facilitation skills. The person selected to run a particular meeting should be objective so consider, say, using a marketing person to facilitate a human resource issue.

Letting your managers run meetings is a cost-effective way to improve management skills and to build a more effective company.

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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Will 2017 Be Better Than Expected?

A1_b2016 was our annus horribilis with drought, political uncertainty, low commodity prices, rising inflation and a weak currency.

From such a low base, economists are arguing things should get better.

What will drive the economy in 2017?

Balance of Payments

Our economy has been running a substantial trading deficit which puts pressure on the Rand and inflation. As with any economy, it is important we live within our means. To the end of October the current deficit was R14 billion versus R60 billion in 2015. We have an open economy which means that when exports rise and imports fall, we are creating economic growth. This substantial turnaround in the current account deficit signals that the economy is starting to pick up steam.

Agriculture

We are coming off one of the worst droughts in living memory. Apart from being a drag on economic growth, the drought has been the largest contributor to rising inflation with food inflation now above 11%. The 2016/17 crop is well under way and is expected to be a bumper crop. This will dampen inflation, improve further the balance of payments and could add up to 1% in economic growth.

Commodities

Since the global financial crisis of 2008/2009, the price of commodities continuously fell. Iron ore fell from $140 to just $20 per ton. In 2016, it rose to $80. The same trend can be seen with our other major commodities like gold and platinum. As commodities make up more than half of our exports, the improvement in prices will also add to economic growth, employment and a further improvement in the balance of payments.

The Rand

The Rand had a roller coaster ride in 2016 – at one stage it touched R17 to the dollar. Today it is R13.50 to the dollar. If it remains within this range it will give confidence to investors (thus attracting investment which will further strengthen the currency) and will keep inflation in check.

But…

Plenty of factors can derail this forecast, such as more political turbulence, particularly around the Finance Minister, a ratings downgrade is still a possibility and the global economy still faces a great deal of uncertainty. We need to also remember that consumers have been under pressure and proposed tax increases in the February Budget will add to this pressure.

Nevertheless we should experience positive growth – it could even go above 2%. This growth could be the springboard for a positive growth cycle. Remember the economy goes in cycles and we have experienced a low point in 2016 which signals the end of the downward cycle. Our population growth rate is 1.7%, so anything above this means there is real wealth growth for the economically active.

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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Litigation Funding: An Affordable Way of Accessing Justice

a4_bIn the life-span of a business, there will almost certainly be a protracted legal process. To a small or medium-sized business, this can prove ruinous as legal costs can be prohibitive.

Current solutions

You can sell your claim but the trade-off is only getting a small fraction of the claim.  Or you can ask your lawyer to fund your side of the case using the Contingency Fees Act – but only if you can find an attorney prepared to use this approach.

The Litigation Funder

This concept has gained traction overseas and is worth seriously considering. In this model, the litigation funder pays all legal costs in return for 40-55% of the claim. Before you recoil at this amount remember that 50% of the claim is way more preferable than 100% of nothing.

Requirements to attract a Litigation Funder

  • The case is strong in law and backed by good, preferably written, evidence
  • The person or entity being sued is solvent and is very likely to remain so
  • You are fully committed to the claim and are prepared to see it through to the end.

Other positives

The litigation funder will be as keen as you to see a successful result and can manage this process for you. This leaves you more time to focus on your business.

If your opponent is well-resourced and intimidating, having a litigation funder will dissuade it from dragging out the case until you run out of funds. It could also persuade the other party to settle the case.

Litigation funding has been successfully used overseas and thus there is no reason that it won’t be equally successful in South Africa.

Ask your accountant for advice if you want to pursue this.

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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Sectional Title Owners Beware: Your Body Corporate Must Have Adequate Reserves

a3_bRecent legislation has been passed which obliges trustees of sectional title schemes to set up a reserve for repairs, maintenance and asset replacement of the common property. This is in addition to the current administration requirement to cover future operating expenses.

If you are involved with bodies corporate you need to pause and consider this legislation – it could hit your pocket and will take time to understand as it places increasing onus on trustees and by extension all stakeholders.

How will it affect me?

The new common property reserve fund will depend on the size of the scheme’s common property assets – for example, if there are items like lifts, large buildings etc then your exposure will be greater.

The higher the body corporate’s cash position and/or investments the lower the financial exposure you will have.

To illustrate this, look at the body corporate’s annual financial statements and see what cash and/or investments they have.  If the cash/investment is enough to cover a full year’s expenditure, your financial exposure should be low as the trustees on the body corporate will be able to create the reserve by using the current cash/investments.

How is the reserve fund determined?

The Act lays down requirements for the reserve fund – the minimum amount is 15% of last years’ payments to the administration fund (sectional title schemes have been required for some time to have a fund for operating costs called the administration fund).

In terms of the reserve fund, the trustees must draw up a detailed plan to be presented at the Annual General Meeting (AGM). This needs to show, inter alia, each capital item and forecast future repairs and replacement of the capital item for the next ten years.

As an example take a lift and assume its economic life is twenty years and the replacement cost is R1 million and the lift is ten years old. Annual maintenance is R10,000. Then the trustees will need to provide R10,000 (annual maintenance) plus R100,000 (ten years to replacement) = R110,000 per annum to the reserve fund.

This plan is then approved at the meeting.

This is clearly a substantial undertaking – make sure you understand how this will work.

Other matters

  • The reserve funds are to have separate bank accounts
  • Financial statements of bodies corporate are to be audited
  • No proxy may represent more than two owners
  • Fidelity and public liability insurance needs to be taken out
  • Valuations of the scheme are to be done every three years
  • In general meetings motions are carried by majority vote. The majority is based on the participation quota of each member i.e. voting is by value
  • A new Ombud Service, which applies not just to sectional title schemes but also to all “Community Schemes” including Home Owners Associations and the like, has been set up to provide a dispute resolution process for anyone affected by a dispute in the scheme
  • All new schemes and rule changes are to be vetted by the Ombud Service. A new set of prescribed rules for bodies corporate came into effect in October last year. They replace existing rules and new and existing bodies corporate need to implement these new rules. The only exception is where bodies corporate have customised rules for their body corporate and these rules do not conflict with the new rules.

There have been significant changes to the governing of bodies corporate. Speak to your accountant if in doubt as it may require additional funding by you.

Remember that whilst you may need to pay now to set up the reserve, in the longer term this will even out and will substantially reduce the need to raise special levies.

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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There’s Plenty of Good News Out There!

a2_b“When you’re chewing on life’s gristle,

Don’t grumble, give a whistle!

And this’ll help things turn out for the best

And always look on the bright side of life!”

(Monty Python’s Eric Idle)

Lately, all we seem to get is depressing news – potential ratings downgrade, declining employment, corruption scandals and escalating protests.

Despite this good things continue to happen and the trajectory of the nation is, in many ways, upwards.

If you don’t believe it, what about this?

Perhaps the most significant statistic is how is our income per head (GDP is used as a surrogate for this) doing in real terms (i.e. stripping out inflation), as this tells us objectively that people are either better or worse off than previously.

GDP per capita has grown from approximately US$ 9,900 in 1996 to US$12,400 in 2015 – an increase of over 25%. Remember the Rand to $ exchange rate has declined from $1 = R4 to S1 = R14 in this period. Thus, average living standards have increased substantially.

Other figures back this up.  Living Standards Measures (LSMs) have also shown improvement:

capture

(Source:  SA Institute of Race Relations)

In other words, 38.8% of the population in 2001 lived on R1,300 per month whilst only 10% now do. Today 25% earn R20,500 per month versus 16.3% in 2001. 28.8% of the population have moved from low income to medium/high income in a generation. Along with this there have been large increases of people with access to running water, health care, education and electricity. This is quite some going.

Inflation was 9% when the ANC came to power and it is just on 6% today. The budget deficit to GDP was 7.1% in 1993 and today is 3.9%

In 1995 259,000 Black learners matriculated whilst last year just under 370,000 matriculated. In 1994, 20,610 people (27.8% of all graduates) graduated from tertiary institutions with degrees in science, engineering and technology – last year this figure was more than 55,000 (30% of all graduates).

Thus, if we look beyond the noise, things are going quite well. In a generation, the country has made incredible progress. Don’t forget the recent election – we heard plenty of populism and dire predictions, yet people filtered out the noise when they voted.

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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