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Could the “pay now, argue later” principle be repealed?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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What’s Behind the SARS Inquiry?

Businessman Doing CalculationsThe Minister of Finance has announced that the President has agreed to an independent inquiry chaired by a judge to probe why SARS is missing its revenue targets – this year it is forecast to miss budgeted tax collections by R50.8 billion and in excess of R200 billion in the next three years.

With the country facing a funding crisis and some credit rating agencies having downgraded South Africa’s debt, the Minister considers it imperative to investigate if this shortfall is due to:

  • The economy, where low growth is impacting revenue collections,
  • Inadequate tax collection systems and governance at SARS,
  • Increasing reluctance by taxpayers to pay tax.

Tax experts reckon that just over one third of the shortfall (about R18 billion) is due to poor economic performance, with the balance explained by declining tax morality and administrative difficulties within SARS.

The decline in tax morality is driven by incessant stories of government corruption and by the fact that the income tax rate is reaching a point whereby further increases could result in further declining tax collections (the “law of diminishing returns”).

SARS has lost many of its most skilled staff over the last few years. This is particularly concerning considering that SARS should be focusing on complex areas of taxation, for example, Base Erosion and Profit Shifting (BEPS), whereby multi-national enterprises (MNEs), among other things, move their profits to low-tax countries. As tax practitioners globally are sophisticated and well resourced, tax consultants have expressed concerns over SARS’ ability to counter these practices.

One also has to question if the rating agencies will respond favourably to the inquiry. Their recent pronouncements indicate they require evidence of growth strategies and cost cutting.

Let’s see how this unfolds.

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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Are You Part of a Product Supply Chain? Beware the CPA

A3The Consumer Protection Act (CPA) exposes you to some harsh remedies if, for example, a consumer suffers harm from a product supplied to him or her.

Affected businesses should take steps to reduce their exposure to such liabilities as they may be jointly and severally liable to compensate the consumer. These claims could be huge.

Brief summary

A producer or importer, distributor or retailer of any goods is liable for any injury or loss due to —

  1. Supplying any product that is not safe,
  2. A product failure, defect or hazard in any goods, or
  3. Insufficient or no instructions or warnings of any danger posed to the consumer by the product.

Significantly, there is no requirement for there to be negligence involved by anyone in the supply chain supplying the goods – you are “strictly liable” for any harm suffered by a consumer.

It is also worth bearing in mind that the supplier of products definition includes installers and anyone providing access to the goods – if that includes you, it is worth clarifying your position by taking expert advice.

The “harm” for which you face liability means:

  • Death, injury or illness to a person,
  • Economic losses, or
  • Loss or damage to physical property.

Your to-do list

In terms of 3 above, detailed instructions should be given to the consumer on the uses and potential dangers of the product, when the product is purchased.

If you are a distributor or retailer of the product consider getting an indemnity from the producer of the goods. Understandably, this may be difficult to get but if you cannot get it, seek written assurances that all standards of production are met as are all quality controls.

Another avenue is for the various parties in the supply chain to cross-indemnify each other. Thus, for example, a distributor may indemnify the other parties whilst he holds the product in stock, the retailer will do likewise in terms of supplying a pamphlet setting out all known product risks to consumers, and the manufacturer will indemnify the other parties on production processes.

You could also get the consumer to sign that he or she is aware of the risks of the product and is prepared to still purchase the product. The difficulty with this is there is no certainty that it will negate the “harm” clauses.

There is plenty to think about with this legislation. It is worth taking expert advice in protecting yourself.

One good thing though is that the quality and standard of goods should rise, which is to the benefit of us all. Already consumers are increasingly using the CPA to lodge claims for product defects.

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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Groundhog Day with SARS for Deceased Estates: Expect Delays

A2“A situation in which a series of unwelcome or tedious events appear to be recurring in exactly the same way” (Oxford English Dictionary definition of “Groundhog Day”)

Recent changes to legislation have made it more frustrating and time-consuming to wind up deceased estates.

Taxing the estate and a problem for SARS

Prior to 1 March 2016, any taxable income that accrued to a deceased estate was taxed in the hands of the heirs of the estate.

The problem for SARS with this was that often the heir was unaware that part of the inheritance was in fact taxable income and thus this was not declared to Revenue resulting in it “slipping between the cracks”.

The new position  

Estates where the person died on or after March 1 2016 are required to register the deceased estate as a taxpayer and to account for income and expenditure until the liquidation and distribution account of the deceased estate is drawn up. Whilst this adds to the administration burden on the deceased estate, it ensures that SARS do not lose this erosion in the tax base.

But it gets worse 

When the final liquidation and distribution account is completed (this reconciles all the assets and liabilities of the estate, how much is due to the authorities and the balance distributed to the heirs) there is a time lag of a few months due to it being checked by the Master of the Court, then by SARS, and then it is open to public scrutiny for any creditors or heirs to query it.

In this period, more income can accrue to the estate which means tax needs to be paid to SARS and another final liquidation and distribution account be drawn up. This can become a “groundhog day” event, causing delay and frustration.

Hopefully, sense will prevail and SARS will amend this legislation to provide that from the date of the lodging of the final liquidation and distribution account, the heirs and beneficiaries become liable for any further tax.

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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Middle Managers – They’re Vital to Your Success!

A1“The conductor of an orchestra doesn’t make a sound. He depends, for his power, on his ability to make other people powerful” (Benjamin Zander, Conductor and author of “The Art of Possibility”)

It is generally accepted that the most successful companies have visionary leaders, with good and empowered middle management to implement this vision. Yet conventional wisdom looks down on middle management – they are often associated with bloated bureaucracy where nothing much happens.

As the famous quote goes “I was appointed to middle management; I didn’t know I could sink so low”. In fact, most middle managers won’t admit that they are middle managers – invariably a distribution manager will say he runs distribution.

As in sport …

Most people know that José Mourinho is the Manager of Manchester United. Similarly, Lionel Messi is celebrated as the great star of Barcelona but few can name the team’s captain. After a big match, the sound bites come from the manager or the star player – seldom from the captain unless he happens to also be the star player.

Yet when we look at teams that often win tight matches, they invariably have a good captain. The captain makes sure the game plan is adhered to, makes key decisions (like kicking for touch or going for poles) and he or she is the one who inspires the team when the game gets tough.

… so in business  

70% of middle managers say they have no or very little input into strategy and 80% feel undervalued by senior management. They are the ones though who interpret the vision and on a day to day basis make this vision a reality. They are also the conduit between the workforce and senior management.

Middle management are the “captains” of business. They have access to key information before senior management – for example they can douse a potentially dangerous situation by defusing conflict before it escalates. When a policy runs into practical difficulties, they can fine-tune it to be successfully implemented.

Once senior management have set out the objectives they should, as the saying goes, “appoint good people and get out of their way”.

If you want your business to run successfully, don’t forget the vitally important role middle managers play.

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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Your Tax Deadlines for November and “Watch Out, SARS is On The Warpath!”

a7Non-provisional taxpayers using eFiling or electronically submitting from a SARS office need to file their 2016/2017 Income Tax Returns on or by 24 November.

Secondly, tax compliance levels are slipping and SARS is planning to aggressively counteract this, noting that a substantial number of taxpayers have not submitted their tax returns on time and/or have not settled tax debt due to SARS. This trend, it says, applies not just to this year but to prior years.

Tax returns in question are:

  • Income Tax
  • Value Added Tax
  • Pay as You Earn Tax
  • Corporate Income Tax

Be warned that it is a criminal offence not to submit a return on time.  Failure to file returns on time therefore not only gives SARS the right to levy penalties for every month overdue but also at the same time to institute criminal prosecution.

This should not leave any doubt in taxpayers’ minds as to the risks of non-compliance so ask your accountant for advice now if you have any doubt about being fully compliant.

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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Disappointing – SA Slips Down the World Competitive Index

a6Every year we report on the World Economic Forum’s (WEF) Global Competitiveness Index. This year South Africa slipped from 48th to 61st in the rankings. What was disappointing is that previously we were ranked 3rd in terms of corporate efficacy but this year fell to 34th. The audit profession had been ranked top for several years but has fallen to below 30th place.

Clearly this is a direct fallout from the various scandals engulfing State Owned Companies but it does call for sober reflection as to how we face these issues.

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 Latest on the SVDP

A5Access to the Special Voluntary Disclosure Program (SVDP) closed at the end of August 2017 and the government netted a little over R1 billion. There were two thousand applications for this amnesty. Whilst this is not the final amount as SDVP applications are still being processed, there is little doubt that National Treasury was expecting to generate more income. The Davis Tax Committee for example proposed this amnesty and expected the Fiscus would collect up to R10 billion.

Tax experts have put the disappointing results down to the complexity of the application form (detailed documentation was required by SARS and the Reserve Bank) and the fact that if clients opted not to go for the SDVP, their accountants were obliged to inform the authorities. It would also appear that talk of a tax revolt may be gathering momentum, which meant that individuals seemed to weigh up their options.

The SDVP was tabled as the final opportunity for taxpayers to regularise their affairs in terms of undisclosed off-shore assets and income. From September 2017 the automatic exchange of information between revenue authorities from over seventy countries began and is expected to expose non-compliance on an unprecedented global scale. Further “Panama Papers” style leaks are also reportedly occurring and no doubt SARS will keep a close eye on them.

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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SMEs Beware: POPI is Finally Becoming a Reality

A4“Forewarned is forearmed” (wise old proverb)

The Protection of Personal Information Act (POPI) has been in the public domain for several years and has been enacted into law, but its enforcement provisions are not yet in effect. The appointment of a Regulator and the issuing of draft Regulations for public comment, however, indicate that the Act will probably come into effect in 2018. The recent massive database leak may lead to a bit of fast-tracking here.

POPI will require that all personal information (IDs, health records, religion, employment records, sexual orientation etc) must remain confidential and organisations need to identify where this information is held and take steps to protect it.

Although there will be a twelve month grace period (from the date POPI’s enforcement provisions become effective) entities should not underestimate how much work is required to ensure compliance.

The growing trend of hacking of private information will make this task more onerous and additional costs may need to be incurred to ensure that adequate cybersecurity measures are in place.

Small and medium sized businesses (SMEs) will be under greater pressure as they do not have the resources of the larger corporates. 

What will you need to do?

You will have to –

  • Appoint an Information Officer (the person or entity responsible for the implementation and operations of POPI).
  • As a starting point, identify what personal information you hold and how it is processed, given to third parties, stored and destroyed.
  • Design, test and implement systems and procedures to ensure compliance with POPI.
  • Have policies in place to report any breaches of personal information.

Per the draft Regulations (comment has been called for so they could well change):

  • A manual (which is available to the public) setting out how the organisation complies with POPI must be drawn up. The manual needs to provide assurance that personal information will be adequately protected;
  • Measures and systems must be in place to respond to requests for access to personal information; and
  • Training sessions must be held for relevant stakeholders to ensure that there is an understanding of POPI and that the company’s systems are compliant.

Penalties for non-compliance are severe – a fine of up to R10m or ten years’ imprisonment.

Don’t forget also the potential cost of being sued by people or organisations whose personal information falls into unauthorised hands or is hacked whilst under your control. Consider for example the possible claims arising from the recent South African database leak compromising the private data of 60 million people. (As a side-note:  Check whether any of your email accounts have been compromised here – remember to check all your email addresses, personal as well as business, and seek advice immediately in any doubt.)

It will be critical therefore that you can demonstrate you have shown the necessary preparation and have put in place robust systems to protect personal information.

Start planning for POPI now – it will expose you to huge risk when it kicks in and forewarned really is forearmed!  

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 are We Doing on the “Better Life Index”?

A3Since the introduction of double entry bookkeeping in the fifteenth century, it has been widely accepted that profit equates to value. This concept moved to nation states and today we measure how well a country is doing by its Gross Domestic Product or GDP. By adding up the cost of all the goods and services in a particular period (normally a quarter or a year) the GDP is calculated. Positive GDP means that economically, South Africa is doing well and negative GDP tells us we are in, or potentially are headed for, a recession.

Beyond GDP – 11 new measurements

It is now acknowledged that value means more than a binary measure of more or less money in the economy– we should look to broader considerations as to how we, as a nation, are performing.

Some well known organisations such as the Organisation for Economic Cooperation and Development (OECD) and the World Economic Forum have looked at other measurements to establish our well being.

The OECD has released its “Better Life Index” which consists of eleven alternate measurements, such as:

  • Education – what qualifications you have and how it helps your life. Well educated people are more likely to participate in civic affairs, live longer and be happier than those less educated. In the countries measured (thirty seven), South Africa finished third from the bottom – ahead of Brazil and Mexico.
  • Environment – how much open space there is and the quality of the air and water. The higher the score the better the population’s health and mental facilities. Here, South Africa was in the bottom quartile mainly because we are a mining nation and currently rely on coal for the bulk of our energy.
  • Civic Engagement – how people participate in democracy, how transparent the government is and how easy is it to hold leaders to account. Again we are below average in this field.
  • Work/Life Balance – How much time we devote to leisure and taking care of ourselves, how much time we spend at work. Not surprisingly, the Netherlands and Denmark come out tops. What is interesting, however, is how poorly the United States, Japan and England performed. South Africa did not do too badly here, being squeezed in between Australia and Iceland.

Other factors are how safe we are, adequacy of housing, the jobs available, our health, income, participation in community activities and life satisfaction.   Have a look at South Africa’s full report card here.

These surveys show that we are moving to more holistic methods of measurement. What is surprising about all these new methods is there is a correlation between GDP and the Better Life Index – countries with positive GDP tend to score well on the Better Life Index. The accountants were right all along!

This is a welcome development and shows that even the wealthiest nations still have work to do in improving their populations’ well-being.

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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