Although Budget 2015 has delivered some good news for small business, the South African Institute for Professional Accountants (SAIPA) says it’s not all good news, particularly for those who run their own consultancies. And, according to SAIPA tax expert Ettiene Retief, there’s some bad news hiding in the annexures for companies that do business abroad.

Small business tax break doesn’t benefit all small businesses
Finance Minister Nhlanhla Nene’s announcement that small businesses with a turnover of less than R1 million a year will benefit from a more generous tax regime is a little misleading, according to Retief. Nene said that those with a qualifying turnover of less than  R335, 000 a year will pay no tax and the maximum rate will be reduced from 6% to 3%.

However, according to Retief, this does not apply to small businesses that provide services as their core business, for example, accountants, engineers, graphic designers etc. “For several years now, we have seen no tax breaks for small business owners who provide personal services, despite calls for incentives to be extended to them,” says Retief.

The personal services sector has seen rapid growth worldwide, providing an enormous boost to economies that encourage those with special skills to start their own businesses. “South Africa’s economy could benefit enormously if it were to extend the current small business tax relief and incentives to personal and professional services which have low start-up costs and provide the additional benefit of imparting much-needed skills to employees as they grow organically,” he says.

Bad news for cross-border traders or consultants
Buried in the Budget 2015 annexures is a proposal to scrap a tax provision that provides a much-needed tax break to companies who do cross border trade or consulting. “Without Section 6quin, whose end seems imminent, there will be a serious impact on such companies and we could see a decline in international business as a result,” says Retief.

The section in question is of benefit to companies that trade with or consult for foreign companies when tax is withheld from their payment in the foreign countries. 

“How it works is, if you’re a consultant working in South Africa on a report that’s delivered to another country, and the other country’s tax laws require a portion of your invoice to be withheld for tax. The source is regarded as South Africa. As you are taxed on your world-wide income, you’ll be taxed again on the invoiced amount, even though you’ve received less than the amount you invoiced from the client, due to the withholding tax. Section 6quin allows one to claim a tax credit, but without it, the company will almost certainly not be able to gain any relief as being taxed in another country on South African source income is not considered a tax-deductible item in South Africa.

“This is a worrying development as we believe that South Africa must do all it can to protect and encourage international trade and business. In this light, Section 6quin is a necessity.”

Decrease in the ‘deemed amount’ to impact drivers
Bad news for drivers is that the general fuel levy will be rising by 30.5 cents per litre, together with a 50 cent a litre increase in the Road Accident Fund levy, bringing the total fuel levy increases to 80.5 cents a litre. “On top of this, it seems very likely that the coming months will see an increase in the fuel price for economic reasons,” adds Retief.

In this light, the decrease in the ‘deemed amount’ to R3.15 per kilometre will have an impact on individuals who use their vehicles for business purposes. “It seems strange that this amount is being reduced, particularly since other costs relating to vehicle usage, such as depreciation, insurance and maintenance, are constantly increasing.”

VAT increase not off the table yet
Although no increase in the VAT rate was announced in Budget 2015, with economic growth expected to be sluggish in the coming years, Retief says an increase in the near future is highly likely. 

“With South Africa already borrowing more money than it had expected it would, together with the fact that government is unlikely to be able to reduce its budget, an increase in the VAT rate is to be expected given its efficiency in increasing fiscal income,” he says.

“However, as SAIPA, we recommend that government consider extending zero-rating and exemption provisions to include more food items and things such as school uniforms and text books, in order to reduce the impact on the general consumer.”

Retief concludes: “As with this and the other areas of concern highlighted by Budget 2015, we hope to see thorough consultation with business in order for provisions to be introduced that could stimulate economic growth and address the high level of unemployment.”

ENDS

MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SAIPA please visit:
Website: www.saipa.co.za 
Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
Facebook: South African Institute of Professional Accountants

The South African Institute for Professional Accountants, SAIPA, will later this month become the first professional body for accountants to sign the Collaborative Stakeholder Movement’s (CSM) Anti-Corruption Pledge. The CSM provides a platform for constructive engagement between diverse leaders and stakeholders around common causes.

“We are delighted to be one of the first leading organisations to demonstrate our support for the CSM campaign by signing the pledge,” says SAIPA chairperson Shirley Olsen. 

“This is our way of saying, publically, that we as a professional body are committed to using all of our resources and influence to help lead South Africa in stamping out corruption.”

Olsen will sign the pledge on behalf of members during SAIPA”s annual Budget Speech function at 18:00 on Wednesday 25 February at the Hyatt Hotel in Rosebank, Johannesburg.

Earlier this year, the South African Board of People Practices became the first human resources body to sign the pledge.

“We are delighted that private sector organisations are taking the lead in saying no to corruption through such a partnership,” says Olsen. 

The pledge commits SAIPA to engaging with any and all stakeholders, including business, government, labour, civil society, statutory organisations, clients, vendors, partners, associates and staff to combat bribery, fraud and corruption.

“As professional accountants, we are at the very coalface of where such illegal practices take place – and are covered up. To this end SAIPA, as a professional body, commits that its members will not engage in acts of bribery, fraud or corruption, whether directly or indirectly. That’s what we will not do. But what we will do is also of great importance.”

In terms of the pledge, SAIPA undertakes to promote initiatives and support legislation that provide effective safeguarding to anti-corruption whistle-blowers in the private-, public- and non-profit sectors. “This fits well with what we already do as a trusted advisor to government when it comes to submissions on lawmaking,” she says.

The pledge also requires its signatories to endeavour to report on and confront individuals and organisations that approach us to participate in any acts of bribery, fraud or corruption.

“In terms of this, SAIPA members already follow a strict international code that condemns such behaviour in the strongest terms.”

“Given the expertise of our members, especially where we work with government in supporting its financial operations, we are aware that we as professional accountants are in a unique position to play a powerful role in stopping corruption in its tracks,” she says. 

“Rarely does corruption have no witnesses outside of the primary agents. We, as SAIPA, are saying that if we come across it, we will do all that we can to root it out. That is our commitment to building our country on a clean, stable foundation.” 

Quoting part of the pledge, Olsen concludes: “As a Catalyst for Collaboration, SAIPA is a face for positive change in South Africa. We are an active ambassador for realising the collective dream of a thriving country, one in which all citizens are sustainably employed in a land void of the challenges fashioned by bribery, fraud and corruption. 

“We pledge our devotion to provoking and inspiring South Africans to work together to fight against these evils, so that all citizens may live and work in a free and fair economy.”

ENDS
​
MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SAIPA please visit:
Website: www.saipa.co.za 
Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
Facebook: South African Institute of Professional Accountants

In the run-up to the annual budget speech, the South African Institute of Professional Accountants (SAIPA) has warned that declining tax morality is one issue the Minister of Finance needs to address. 

“The budget speech is one of the most important events of the political year because it shows not only where government is spending its money, but where that money is coming from,” says Ettiene Retief, chairperson of the National Tax and SARS Stakeholders Committees at SAIPA. “The trouble is that South Africa’s tax base remains worryingly constrained, so from the point of view of risk management, it’s important that existing individual and corporate tax payers remain broadly committed to meeting their tax obligations.” 

It’s an unfortunate fact that this vital group is becoming increasingly disenchanted with the way that tax revenues are being spent. Corruption has become an unpalatable fact of life in South Africa, with huge sums wasted on fruitless and irregular expenditure annually, according to the Auditor General—R30.8 billion in the last financial year. 

An added issue is that many taxpayers also feel that government is not ensuring it gets fair value for the money it does spend on projects. The delays at the Medupi power station and the ongoing textbook crisis are just two high-profile examples of the latter problem. 

Retief argues that while nobody really wants to pay tax, most citizens accept the need to fund the public purse and that tax is required in a civilised society—but taxpayers need to be able to see that these revenues are being well spent. In today’s increasingly open and transparent society, ineffective spending (or worse) is well publicised and begins to erode taxpayer commitment. Also, many taxpayers still need to fund private schooling, security, and health care from after taxed earnings.

“Some commentators have started talking about a tax revolt along the lines of the e-toll saga, but I think we are far from that,” Retief observes. “For one thing, it involves considerable risk because SARS has become very effective at spotting non-compliance, and has been given quite sweeping powers to collect taxes even from unwilling payers. But what we could see is individuals and companies becoming much more creative about developing new ways for avoiding tax, which would in turn divert SARS’s focus and increase the cost of collection.”

He adds that one should not discount the possibility that taxpayer disenchantment could become something much more active in the future—especially given the erosion of ethical standards caused by corruption or perceived corruption at the highest levels. 

With other issues, such as the unstable electricity supply, may even see an increase in highly skilled taxpayers exciting South Africa. 
“Previous Ministers have promised action on corruption and poor government spending practices—now we need to see some progress.”

ENDS

MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SAIPA please visit:
Website: www.saipa.co.za 
Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
Facebook: South African Institute of Professional Accountants

* Since releasing this statement, Netwerk24 published it in Afrikaans http://bit.ly/1LbXaP8

The South African Institute of Professional Accountants (SAIPA) has issued a call for the 2015-16 budget to focus on finding solutions based on the country’s economic realities. 
Ettiene Retief, chairperson of the National Tax and ARS Stakeholders Committees at SAIPA, says that Nhlanhla Nene, the Minister of Finance, faces a tough challenge when putting together his first annual budget. “The bottom line is that the Minister faces the prospect of less tax revenue than government needs. How he attempts to resolve this dilemma will have far-reaching consequences,” Retief says. 

Retief argues that a number of factors have to be considered when arriving at the right solution. The main problem is expanding the tax base, and the level at which taxpayers can contribute considering the substantial number of people that have been retrenched due to business failures, business rescues, and companies trying to curb losses. The sad truth is that the economy simply is not growing fast enough to create new taxpayers (individual or corporate). South Africa thus remains highly dependent on a small pool of taxpayers to fund government expenditure: 0.1 percent of corporate taxpayers have assessed taxable income in excess of R100 million, 7 percent of registered VAT vendors pay 75 percent of VAT, and 34.5 percent of all tax revenues come from a small number of individuals. 

Retief says that the lack of economic growth can be attributed to a number of factors, among them lacklustre global performance. Back at home, the ongoing labour volatility and lack of power are directly affecting the companies and sectors that make up the most productive parts of the tax base, among them manufactures, retailers and miners. 

“The real impact of labour unrest and Eskom’s woes is the reduced growth in the economy with everything that means—including fewer taxes,” Retief says. “The easy answer is for the Minister to raise taxes for the small pool of individuals and companies that already pay most of the tax. However, the danger here is that this would in turn negatively impact the economy by reducing disposable individual income, and further constraining companies’ ability and inclination to create new jobs, not to mention impact on foreign investments. VAT receipts would also be likely to suffer due to the reduced disposable income.”

Increased taxes would also risk fuelling taxpayer dissatisfaction, which is already being clearly expressed in social media forums and in “revolts” like the refusal to pay e-tolls in Gauteng. While some commentators have suggested that a tax revolt is possible, Retief believes it would be unlikely for a number of reasons. He does warn, however, that tax morality could be hard hit by raised taxes given high levels of dissatisfaction with high levels of corruption and “fruitless and wasteful” expenditure by government entities. 

“Previous finance ministers have promised action on both these issues, but taxpayers need to see some concrete action now,” Retief says. “A genuine focus on eliminating corruption and ensuring that money spent gets the right results will go a long way towards solving the problem at least in the short term. However, the long-term solution is to find ways of stimulating economic growth and the required infrastructure to create sustainable jobs and thus broaden the tax base and increase the taxable income of taxpayers.”

ENDS

MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SAIPA please visit:
Website: www.saipa.co.za 
Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
Facebook: South African Institute of Professional Accountants

SAIPA, the South African Institute of Professional Accountants has some advice for Finance Minister Nhlanhla Nene when he delivers the annual budget speech next month. It’s all about giving small businesses a break and being smarter about how he slices up the pie.

Give small businesses a break
Top of the list, and in the interests of boosting the economy, is increasing the Small Business Corporations Taxable income threshold. 

“This is important because small businesses are the engine-room of the economy, so they need all the support they can get to grow,” says Faith Ngwenya, Technical Executive at SAIPA. “Cash-flow for small businesses is critical and the lack of it is the chief reason why most fail in their first 18 months of operation. That is why government needs to do all it can to help them stay in business and plough their extra cash back into their companies.”

Clamp down on wasteful expenditure
With little room to increase revenue, the Finance ministry needs to be smart about exactly how much money it allocates to each government department. “However, as we all know, a lot of financial resources are inappropriately used and often there are poor controls to detect and or prevent it, so that is why we are calling on government to do more to stop this disturbing trend,” she says.

“In order to better its balancing act, Nene will need to overhaul the budgetary allocation.”

Enable education
With some of the money Nene saves by implementing the above suggestion, Ngwenya recommends that he redirect it into education. “But, this needs to happen in tandem with proper systems being implemented for the accountability and monitoring of the utilisation of these funds by the Basic Education and Higher Education and Training departments.”

“Greater accountability is an absolute must, else the money will not be effectively used.”

Social security
Finally, Ngwenya believes that social security should remain as the recipient of one of the highest budget allocations. “Certainly, we would welcome a higher old age and disability, pension, foster care and child grant increase as the recipients of these grants plough the money back into the economy.  However Ngwenya raises question marks on the child grant, particularly the proposal to extend the child grant support eligibility age to 23. The financial implications on the increased pull of recipients resulting from the additional five years for eligibility? 

“How will these costs be financed when we are sitting with such a huge budget deficit?” she asks, recommending that Nene reconsider increasing the size of the pool of beneficiaries.

For more on Budget 2015, visit www.saipa.co.za

ENDS
​
MEDIA CONTACT: Cathlen Fourie, 012 644 2833, cathlen@thatpoint.co.za, www.atthatpoint.co.za  

For more information on SAIPA please visit:
Website: www.saipa.co.za 
Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
Facebook: South African Institute of Professional Accountants