Author: Faith Ngwenya, Technical Executive at the South African Institute of Professional Accountants (SAIPA)
 
Grant Thornton recently published their International Business Report for the third quarter of 2017. Their findings show that South African business executives continue to adopt a “wait and see” approach to business due to political and economic instability in the country.
 
Of the 100 South African business executives who are surveyed for the quarterly report, 72% confirmed that turbulence in the economy over the past six months have affected operations and decisions, 38% were considering investing offshore and 28% were contemplating selling their businesses.
 
The problem with keeping operations stagnant and simply focusing on keeping heads above water is that we’re not solving the problem – we’re perpetuating the problem and adding a steady stream of fuel to a slow burning fire. If everyone adopts a ‘wait and see’ approach, we’re not moving businesses or the economic prosperity of our country forward.
 
But the spotlight on growth and success
As professional accountants, we have a key role to play in changing the perspective of business owners and this can be achieved in a number of ways. At SAIPA, we’re encouraging clients to dig deep into the financial histories of their clients so that a spotlight can be put on what they have been able to achieve amidst tough turbulent times, economic downturns, and setbacks that have affected their industry or business specifically.
 
Many times, despite barriers, hurdles and challenges, businesses have been able to show positive growth. These are the things that your clients need to be reminded of and as an accountant, you should be drawing their attention to their successes and achievements.
 
Besides being the opposite of a doomsayer and essentially becoming nothing short of a cheerleader for your client’s business mission and goals, you can also highlight viable investment opportunities within our own borders. Money can be made by investing overseas, but there’s also money to be made by investing in South African investment opportunities.
 
Research investment opportunities that would appeal to your clients and that would align with their business operations, interests and industries to show them how they can benefit themselves as well as inject money into South African opportunities. Economic upliftment and sustainable development starts at home and if your clients are taking their wealth, jobs and businesses overseas, then it has a butterfly effect that negatively impact many South African citizens, their families, and the economy.
 
South Africa is still a major driver in the global economy
It’s also important to look at different economic indexes that can give your clients a better, broader perspective. Instead of waiting for the results of upcoming political events, which is essentially a short-sighted approach, delve into the indexes that are painting a much brighter picture. When compared to other BRICS, South Africa has become a major driver in the global economy and a force for change in the developing world. Context is key.
 
As accountants, we also need to do our part in making foreign investment in South Africa more attractive. Many businesses want to start operations in South Africa for myriad reasons, ranging from our natural resources to our proximity to booming African markets. One of the things that is holding them back is cumbersome legislation.
 
Our employment regulations are seen as a huge barrier to entry in the country and this is something that Government needs to carefully rethink. In September 2017, the World Economic Forum announced that South Africa had slipped down 14 positions in the World Economic Forum Global Competitive Index and restrictive labour regulations were cited as one of the reasons for this.
 
South Africa’s unemployment rate is high and it is disturbing. Accountants need to join forces with the appropriate unions and challenge these legislations so that we can make it easier and more attractive for companies to invest in our country; the natural result will be more employment opportunities for our people.
 
In conclusion, your clients need to be made aware of what they’ve been able to achieve despite economic situations that are far outside their realm of control. Show them how they have continued to grow, what they could be doing better, which areas of their business they should be investing in to drive growth and how a big-picture mentality and positive outlook can help them continue to grow.
 
ENDS
 
MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za 
 
For more information on SAIPA please visit:
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Twitter: @SAIPAcomms
LinkedIn: South African institute of Professional Accountants Company
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Author:  Ettiene Retief, Chairperson of National Tax and SARS Committee of the South African Institute of Professional Accountants
 
Finance Minister Malusi Gigaba will be delivering his inaugural Medium-Term Budget Policy Statement (MTBPS) on 25 October. His approach to the fiscal challenges facing the country will be vital to quell concerns about the economy, the perceptions of corruption and wasteful expenditure.
 
He must be able to convince international markets that all is under control.
 
Current economic climate
In February government expected the economy to grow by 1.3 per cent for this year and 2 per cent in 2018 as economic conditions strengthen. It raised taxes in order to fund existing spending programmes. The then minister of finance admitted that raising taxes when the economy is struggling is undesirable, but unavoidable in the current fiscal circumstances.
 
The economy contracted for two consecutive quarters and only came out the recession in the second quarter of 2017 when growth of 2.5% was recorded. However, if the first half of 2017 is compared with the first half of 2016, the growth rate was 1,1%, according to Statistics SA.
 
Since the February budget there has been negative economic indicators. Employment figures have gone down, with many more retrenchments in the pipeline that may translate into less Personal Income Tax collections. People are less inclined to shop when they are unemployed and lack cash-flow, which translates in less Value-Added Tax. Very few corporates are making huge profits, which may result in less Corporate Income Tax collections.
 
Projected tax income for the 2017-18 fiscal year is R1.41bn and the proposed expenditure R1.56bn. The minister will use his policy statement to indicate to which extend these figures will have to be adjusted. Government debt had been around 50.7% of Gross Domestic Product in February – which amounts to more than R2 trillion.
 
Expectations vs reality
Tax collections in all three the major tax types (Personal Income Tax, Value Added Tax and Corporate Income Tax) are expected to be lower than expected in February.
 
South Africans will need clarity on how Minister Gigaba is going to adjust his budget and whether he will be mindful of the additional cost of increased borrowings to make up for the anticipated tax collection shortfall.
 
They will also need assurance that government will keep expenditure in check, and even cut costs at non-performing entities. It is essential that SARS remains efficient and robust in its collection and administration of the tax base. However, there are concerns that there is slippage in tax compliance and that taxpayers can expect more aggressive treatment from the taxman.
 
The recently concluded Special Voluntary Disclosure Programme is expected to widen the tax base. The minister will most probably offer some clarity on the number of successful applications and the quantum of the previously undeclared assets that has been brought into the tax net.
 
Regaining taxpayer trust
The lack of accountability in terms of wasteful and fruitless expenditure continues to erode tax morality in South Africa.  In order to regain the trust of taxpayers they will have to be convinced that expenditure incurred by government is “reasonable”.
 
SARS is under pressure to collect tax revenues, with media reports suggesting that it may already not be able to meet target this year. The procedures followed by SARS to collect and administer the tax system must be seen to be reasonable. More aggression is likely to lead to more resistance from taxpayers.
 
It is understandable that government has certain obligations and that it has to fulfil its mandate in terms of efficient delivery of services such as health, safety and education.
However, when people continue to see reports of corruption and wastage without any accountability they tend to become more reluctant to part with hard earned money.
The minister has a difficult task on hand. He has to comfort all South Africans, the rating agencies and international markets that we are on the right track.
 
Purpose of the MTBPS
National Treasury states that the MTBPS is a government policy document that communicates to Parliament and the country the economic context in which the forthcoming budget (February 2018) will be presented.
 
It also sets out the fiscal policy objectives and spending priorities over the three-year expenditure period. The policy statement is an important part of South Africa’s open and accountable budget process.
 
The question stands wheter the minister will stay on the course set by the previous minister Gordhan, or will he present revised fiscal policy objectives and spending priorities going forward.
 
It offers the minister the opportunity to inform Parliament and the citizens of South Africa what progress has been made in terms of tax collections and whether the South African Revenue Service (SARS) is on track with collecting the amount that was budgeted for in February, and expectations of potential tax increases to come.

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@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

Author: Faith Ngwenya, Technical Executive at the South African Institute of Professional Accountants
 
Government faces two key issues: severe and worsening unemployment on the one hand, and a growing gap between what the fiscus needs and the tax it can collect. Taking decisive action to grow the SME sector has the potential to resolve, at least partially, both issues.
 
I often think that a country’s tax regime tells the real story about its fiscal health and its priorities. With the Davis Commission in full swing, and tax revenues under pressure as the economy slows and with no reduction in the calls on the fiscus, that story is not a particularly inspiring one at present.
 
Heightened political tension and the growing realisation that a large proportion of the tax money collected over the past two decades, as well as the multi-faceted economic transformation programme, have been “captured” have raised the stakes more than somewhat.
 
It’s against this backdrop that the forthcoming Tax Indaba will meet. It promises to be an interesting meeting, as stakeholders debate a way forward. One of the most pressing topics will be how to strike the right balance between helping SARS close the gap between what it needs to collect and what it can collect on the one hand, and how to stimulate the kind of economic growth that will produce the sustainable jobs we need to reduce poverty. I am looking forward to being part of a panel that will wrestle with this challenge.
 
The panel discussion is titled Small and Medium Businesses: Engine for Growth Versus the Tax Gap. It goes right to heart of the issue because, as researchers believe, SMEs account for up to “91% of formalised businesses, provide employment to about 60% of the labour force and total economic output accounts for roughly 34% of GDP”, to quote The Banking Association South Africa.[1]
 
Government has recognised the importance of SMEs by creating a Ministry for Small Business, and putting several initiatives in place—but still our SME sector is not vigorous, and it’s not generating the jobs we need for a strong economy and a stable society. I increasingly feel that, as a country, we must stop fooling ourselves: everything is not alright and we need to take more decisive action to support SME growth. That’s the only way we will grow our GDP and create jobs—and incidentally bridge the tax gap that the fiscus currently faces.
 
First things first
One important principle we need to accept is that growth has to come first, and tax revenues will follow. This requires the fiscal authorities to take a longer-term view, sacrificing short-term tax revenue in order to expand the tax base sustainably. It often seems as though Government initiatives are not harmonised, and even seem to be pulling in different directions.
 
For example, Government has introduced the Small Business Corporate Tax rate that allows qualifying SMEs to be taxed at a lower rate than the 28 percent normally levied on companies. It has also initiated the Employment Tax Incentive (ETI) to encourage companies to employ young people in order to give them the vital work experience they need to integrate into the formal economy.
 
The lower tax rate for SMEs is obviously a good thing, and so is the ETI, but then one finds that the ETI only applies to very low wage earners and lasts for only 24 months. Isn’t that really incentivising companies to keep wages down? It certainly does not support the creation of long-term employment. Research shows that South Africa has one of the highest failure rates of small businesses.
 
If we truly want to help them succeed, and fast-track their ability to create jobs, then the fiscus must be prepared to sacrifice some tax revenue through mechanisms like the ETI over the medium term to ensure that we maximise the number of sustainable, higher wage jobs created. This will also culminate in a more stable, broader tax base.
 
Indeed, according to research by The Small Enterprise Development Agency (SEDA) in 2007, 75 percent of new SMEs fail in the first year, one of the highest rates in the world.[2]
With an unemployment rate at its highest in 13 years, and the local economy in recession even as the global economy is starting to recover, I would argue that we need to take decisive, concerted action. Integrated, well-designed tax relief for small businesses is a vital ingredient of any plan to boost the economy, create sustainable jobs and ultimately close the tax gap.
 
The Tax Indaba will take place on 11-15 September 2017 at the Sandton Convention Centre, in Johannesburg. The panel Small and Medium Businesses: Engine for Growth Versus the Tax Gap will take place on the second day of the event from 09:45 to 10:30.
 
ENDS
 
MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@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 struggling South African economy may lead to a higher number of companies falling into financial distress and having to apply for business rescue, a daunting outlook given the fact that in South Africa it can take up to three months before the matter comes before a court.
 
Calls for specialist courts with the necessary knowledge and experience to deal with the matters within the prescribed timeframe have increased in recent times.
 
No speedy remedy
The concept of business rescue was introduced through the Companies Act in 2011. The process requires that a business rescue plan is implemented within 90 days from the time the company has filed its notice to commence with business rescue.
 
Faith Ngwenya, Technical and Standards Executive at the South African Institute of Professional Accountants (SAIPA), says this is for all practical purposes impossible to achieve given the current delays. “The urgency to have specialist courts that can deal with the matters efficiently and quickly has never been so great,” she adds.
 
The main aim with the process is to reduce the number of companies which goes into final liquidation. Business rescue can be initiated by an application to court when the business is financially distressed.
 
However, in many instances the application is only heard three months after the notice was filed. Business rescue cases are not prioritised by the courts.
 
Ngwenya says statistics provided by the Companies and Intellectual Property Commission (CIPC) demonstrate that in 78% of the cases it took more than six months for the “substantial implementation” of proceedings.
 
She says during a business rescue process the business is protected from any action that can be taken by the creditors and the company is allowed to operate under the supervision of a business rescue practitioner. However, lengthy delays in the process increase the risk of additional liabilities for the company and the potential of greater financial losses for creditors.
 
Biggest bleeders
According to CIPC statistics the industries with the greatest number of business rescue proceedings include retail (vehicle repairs), information and communication, and construction.
 
Ngwenya says courts needs specialist skills to deal with the complexities of the Companies Act and the business rescue process.
 
“Business rescue is fairly new in South Africa, and although one can argue that a judge or a magistrate will use his professional judgement to take the correct decision, one has to acknowledge that these are not cases they deal with on a daily basis.”
 
The Department of Trade and Industry is the custodian of the Companies Act and CIPC is the implementer of the act.
 
“There needs to be an agreement between the Department of Trade and Industry and the Department of Justice that this (the establishment of specialist courts) need the priority it deserves.”
 
CIPC has accredited SAIPA to regulate its members that are eligible to be business rescue practitioners in October last year.
 
The move to hand over the administration and monitoring of business rescue practitioners to professional bodies like SAIPA will clearly lift CIPC’s burden, says Ngwenya. It may even open the debate on the need to increase efficiency in the process by introducing courts that can exclusively deal with business rescue.
​
ENDS
 
MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@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 Accountant

Author: Bongani Coka, Chief Executive of the South African Institute of Professional Accountants (SAIPA)
 
With the Chinese economy slowing, commodity prices falling and the global economy stagnating, worldwide investment opportunities are scarce. But the last decade has seen a rising wave of optimism over Africa’s growth potential, and global investors are keen to uncover its riches. To realise its prosperity, Africa must first confront the obstacles that prevent investors from committing themselves.
 
Accountants have a central role to play in confronting these obstacles and ensuring the development of Africa.
 
The International Monetary Fund (IMF) suggests that although medium term growth prospects in Africa remains favourable, substantial improvement is required in the recalibration of fiscal policy (including the efficient use of national budgets), better domestic revenue mobilisation, and improving and prioritising the quality and efficiency of public investment.
 
South Africa is in the green because our fiscal policy is sound. We just need to keep our budget in check to ensure government debt remains a low percentage of GDP. Our revenue is also being judiciously invested in infrastructure, with the top five government priorities being healthcare for all, better education, enhanced crime prevention, rural development, and job creation. In South Africa, public investment is lively, with the government spending a fair amount of its budget on social services and public infrastructure.
 
However, we also face growth challenges.
 
Corruption – real or perceived – is a threat to the continent’s development. Additionally, in South Africa, unemployment continues to be unacceptably high, not for lack of jobs but rather a skills shortage in specific sectors from which the field of accounting is not exempt.
 
As for poverty and inequality, financial and human resources must be effectively deployed to address the following challenges, intimately linked to both conditions: optimising Africa’s natural resources, tackling illicit financial flows, increasing effectiveness of public expenditure, and attracting private funding. This is a daunting task if a country lacks the requisite skills to mobilise its resources.
 
In spite of this, South Africa is well positioned to spearhead growth in Africa as envisioned by the IMF.
 
Good resource management is one of the most effective ways to alleviate poverty. But it requires that those charged with the responsibility have the following core skills: good understanding of ethics and governance, good financial management, and transparency and accountability.
 
A true accountant must have all these competencies. If even one is missing, they cannot prudently manage scarce resources, and poverty alleviation initiatives will suffer. In addition, as the people responsible for preparing information, auditing, consulting and advising, accountants are essential to the success of both the public and private sector in Africa. Weighty decisions are taken on their advice or the management information they prepare.
 
It’s in the context of these opportunities and challenges that the accountant becomes a growth enabler. At the South African Institute of Professional Accountants (SAIPA), we try to counter these challenges by emphasising competency-based training, so that after students pass our professional evaluation exam, they are employable. They possess not just theoretical understanding but also the capability to solve real world problems as a practitioner, and so become go-to business advisers.
 
Skills gaps exist in both the private sector and in government, particularly at the local government level. It is for this reason that SAIPA places a special focus on equipping the big metros to train students so they can do their articles in the public sector. For municipalities to be awarded a clean audit by the Auditor General’s office, they need highly skilled professional accountants who perform their duties without fear or favour. It’s encouraging that in the future, all municipal managers will have to earn a special qualification before being appointed to that position. Clean government starts with top-level leaders.
 
Accountants are the champions of right record and should be beyond reproach. To continually earn this trust accountants must work tirelessly to maintain a faultless reputation and root out bad elements.
 
Solutions such as the reversal of illicit financial flows, attraction of foreign direct investment, growth and development of the SME sector, and enhancement of the effectiveness of foreign aid, all depend on suitably qualified and regulated accountants.
 
The main challenge facing the accountancy profession on the African continent and in South Africa is capacity building. Not only increasing the amount of available accountants, but elevating professionals to hold accountability, transparency, and good governance in highest regard.
 
Strengthening the accounting profession and the public financial management capability are critical to this end. It takes strong, ongoing collaborative effort between all the stakeholders – academics, business, government, students and parents, accountants, and professional bodies that emphasise continuous professional growth, research and development, and compliance with best practice.
 
Currently, more than 46% of African countries do not have a professional accounting organisation. Those that do are not yet functioning according to best practice.
 
Ultimately, the role of the accountant is to provide indisputable financial structure and processes, unquestionable record of transaction, and incontestable strategic intelligence. When we can do this at scale, we will pave the way for investor confidence.
 
Accountants therefore control the floodgates of prosperity in Africa, but it is by our integrity and effort that we earn the right to open them.
 
PHOTO CAPTION: Bongani Coka, Chief Executive of the South African Institute of Professional Accountants (SAIPA)

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@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

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

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

The proposal to Parliament by National Treasury to delay the implementation of the proposed retirement funding reform by two years is a negative development and should be reconsidered, says Ettiene Retief, chairperson of the National Tax and SARS Stakeholders Committees at the South African Institute of Professional Accountants (SAIPA).

“There has been extensive consultation with all stakeholders and agreement on the need for reform had been reached and a clear date set—in fact the process has been dragging on for years,” says Retief. “To propose a substantial delay like this at the eleventh hour is highly undesirable and will have several unwelcome consequences.”

Due to come into effect on 1 March 2015, the proposed reforms are aimed at harmonising the regulations and tax rules relating to the main retirement-funding vehicles—provident funds, retirement annuities and pension funds. 

One of the goals of the reforms is to standardise the tax rules relating to these various funding vehicles. There is general agreement that this reform is necessary, and the insurance carriers and investment houses as well as financial advisors are far advanced in their planning for the shift, as are companies and individual investors. It’s unacceptable, says Retief, that uncertainty should be introduced at this late stage, and is likely to breed mistrust. 

The other main goal of the reform is to protect retirement savings, primarily by altering the rules affecting provident funds. At present, members of provident funds are not allowed to claim tax relief on extra or top-up contributions, as is the case with retirement and pension funds. It’s a discrepancy that discourages retirement saving. 

A further problem that the reforms aimed to solve was the fact that upon leaving a job, provident-fund members are allowed to cash in their entire savings, whereas retirement and pension funds have to be “preserved” by being transferred to a similar saving vehicle until a stipulated retirement age is reached. 

“There’s some indication that unions are unhappy with this preservation approach because their members use retirement savings to fund current shortfalls. We even see people resigning from companies to access their provident funds, and then rejoining the same company a few days later,” says Retief. “While one cannot minimise the economic pressure people are under, it’s irresponsible to let short-term considerations mortgage peoples’ futures—government must find a better way to address the problem. Allowing this damaging practice to continue for two further years will have severe consequences for the future of the most vulnerable workers.”

SAIPA urges Parliament not to halt this much-needed reform. 

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

Tapping into the growth markets of Sub-Saharan Africa appears to be a promising way of expanding business but a closer look reveals that doing business in these countries comes with a few challenges. 

According to the World Economic Forum (WEF) Global Competitiveness Report, Sub-Saharan economies continued to register impressive growth rates of close to 5% in 2013 and the forecasts over the next two years are even better. The latest research report by Dr. Thomas Höppli, Economic Research Analyst for the South African Institute of Professional Accountants (SAIPA) confirms these findings and also highlights the challenges in these Sub-Saharan African countries.

“Much of the growth is due to natural resources such as oil and gas. The increase in oil and gas production has caused other related sectors to grow too but consistent high growth has not yet trickled down to all segments of the population,” says Höppli. “As the WEF highlights, most economic activity in Sub-Saharan Africa still happens in the informal sector, which accounts for more than 50% of GDP and employs more than 80% of the population. The main challenge in the years to come will be to turn growth into inclusive growth,” Höppli adds.  

Consumer purchasing power
Despite this challenge, the growth has resulted in increased spending, particularly on consumer goods such as mobile telephony, soft drinks and other small luxuries as consumer purchasing power increases. “There has been a marked upswing in growth of businesses in the consumer goods, communication, and construction and supply chain sectors,” Höppli remarks. “One could therefore consider investing in these types of businesses or establishing your own in these markets.” 

Import and export markets
Furthermore, Höppli notes: “Another way for South African businesses of tapping into these growth markets – instead of physically establishing a business in one of these countries – is through trade. The high economic growth, which has been spurred by export activities and related investment, suggests that demand for imported products as well as purchasing power is increasing rapidly and that they could thus be interesting export markets and foreign direct investment destinations.”

Ease of doing business 
“The major challenges facing the ease of doing business in Sub-Saharan Africa include bureaucratic red tape, infrastructure issues like poor roads and unstable power supplies, a low availability of skilled and suitably trained staff, cultural differences, language barriers and corruption. These problems, although not insurmountable, add to the cost and effort needed to do business,” Höppli warns.

The ease of doing business index implies that the majority of the Sub-Saharan countries are among the more difficult countries in the world to do business in. While countries in which doing business is easier have not seen higher average growth rates since 2008, there is a correlation between how easy it is to do business and the income level achieved in these countries.  GDP per capita, based on purchasing-power-parity (PPP) per capita GDP, tends to be higher the better the country is ranked in the Ease of Doing Business Index.

The higher GPD per capita in countries where it is easier to do business suggests that over time, a more conducive business environment has contributed to achieving a higher level of GDP per capita.  For South African companies it is also an indication that potential customers in these ‘easier-to-do-business’ countries tend to have a higher purchasing power.

Business in Africa not for the fainthearted
“Doing business in Sub-Saharan Africa is a challenge, but those who are undeterred by a business environment that may not be as easy as it may be in other countries could reap high rewards,” Höppli concludes.


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

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