 On 27 February, the South African Institute of Professional Accountants (SAIPA) hosted its Annual Budget Breakfast at The Wanderers Club in Illovo, Johannesburg. The event which saw almost 200 attendees as well as a Live Stream audience, came the morning after Finance Minister Tito Mboweni’s National Budget Speech and served as a platform to review his announcements.
A keynote address by Judge Bernard Ngoepe was followed by a presentation on the budget highlights by Ettiene Retief, the Institute’s Chairman of the National Tax Committee. Below are the top take aways. Union influence In his address, Judge Ngoepe said the government had correctly contextualised the country’s economic problems and had made plans to address them. However, he asserted that they would not follow through on wage bill reduction or SOE restructuring to the full extent indicated, given the strong influence of the unions to obstruct policy execution. “Don’t hold your breath,” he said. Unrealistic growth projection Covering the highlights of the budget, Ettiene Retief noted that last year, the government had projected growth of 1.5 percent, but only achieved 0.3 percent, and this year project growth of 0.9 percent. He said this figure is possibly overestimated as the country could not sustain growth of just 0.3 percent, before considering current economic forces, like the effects of the coronavirus on trade with China and the impact on tourism, and the lack of stable electricity supply. Tourism and agriculture According to Retief, government could make significant strides in its goals in boosting both tourism and agriculture by legalising marijuana beyond only medical use. Also, government needs to consider how to support the agricultural sector, which includes means to ensure sustainable water supplies. “Certain foreign states have quite literally balanced their budgets, taking them out of the red into profitable positions purely on the basis of legalising and regulating marijuana usage,” he said. Water security Retief said that an important economic factor that had not been addressed in either the SONA or the Budget Speech was water security. “We do not at the moment have a sustainable water policy; we’re not even smart in how we use our water in terms of agricultural usage,” he said, noting that this was the one resource without which agriculture could not flourish. We have already experienced water resource shortages, and this matter will require significant infrastructural send. The effect of 4IR Retief explained that the Fourth Industrial Revolution will automate many repetitive tasks, and that this could result in economic growth but does not create more jobs, unless we prepare the labour market to the changing demand in respect of skills. The person currently doing the job must be deployed somewhere else, possibly in a different sector or doing a different task. “I don’t think we’ve really understood how our tax base is evolving, how it’s changing, how it’s going to stay sustainable for the next few years,” he said. Reducing corporate tax rates The Organisation for Economic Co-operation and Development has reported that there is an international trend for corporate income tax rate cuts. The average corporate income tax rate across OECD countries is 23.9 per cent, which was 32.5 per cent in 2000. A lower corporate income tax rate could reduce the risk of Base Erosion and Profit Shifting. However, various studies found that a reduced corporate income tax rate does not yield greater tax revenues or significant increases in investment, said Retief in response to government’s proposal to reduce corporate tax rates. While the corporate tax rate should not be high, we should avoid participating in the “race to the bottom”, and “we should not try to get business here because we’re reducing corporate tax rates.” The speakers and participants in a discussion panel that concluded the event all painted a picture of a budget that does not face the reality of an economy in need of desperate remedial action. ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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
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 President Cyril Ramaphosa’s annual State of the Nation (SONA) speech ahead of the February budget held very few surprises, but he highlighted some key areas where economic growth can be realised.
It is quite telling that the president firstly tackled the biggest elephant in the room, namely Eskom and how it has been thwarting any plans by government to rebuild the economy and to create jobs. He acknowledged that Eskom has been unable to deliver because of its debt, lack of capacity and state capture and that it will need some time to restore its operational capabilities. He sets out government’s plans to mitigate the – as he himself called it – the debilitating effect of load shedding on the country. Ettiene Retief, Chairman of the National Tax Committee at the South African Institute of Professional Accountants (SAIPA), says there is still no clarity as to how long it will take Eskom to get its house in order. There is no clearly defined timeline or strategy that would allow companies to weather the current impact. There is a lot of “we will” statements in his speech, but very little on how it will be done. It is critical to get a better sense of what the strategy and implementation framework will be, says Retief. He says procurement of emergency power from projects that can deliver electricity into the grid will happen within three to twelve months from approval. However, it remains unclear how long it will take to get the approval, or at what cost. Ramaphosa singled out the agricultural industry as a key area for economic growth and job creation. However, he also talks of land reform and expropriation without compensation. The emphasis should be on sufficient support for farmers on productive land, with sustainable water supply, instead of the shift of ownership. “Agriculture is heavily dependent on water and infrastructure. If we get that right it talks to economic growth and sustainability,” says Retief. In acknowledging the biggest challenge facing the country, which is the high rates of unemployment, with almost half of the youth being unemployed, the President announced a two-pronged solution is – the creation of opportunities for youth employment and self-employment. There seems to be a plan that the government has mapped out with the implementation of the Presidential Youth Employment Intervention. These priority actions will be laid out over the next five years to reduce youth unemployment, such as, growing a national network reaching 3 million young people, preparing them for the working world differently, supporting youth entrepreneurship and self-employment, expansion of The Youth Employment Service – which to date says it has created over 32 000 jobs, establishing programmes that will give young people the opportunity to earn an income and 1% of the national budget that will be reallocated to finance youth employment initiatives. The concern that we have, says Faith Ngwenya Technical and Standards Executive at SAIPA, is that we have seen similar plans being introduced in the past, but they have not made any dents in the unemployment. Another highlight to the 2020 SONA which SAIPA is watching with keen interest is the introduction of the She TradesZA, a platform aimed at assisting women-owned businesses to participate in the global value chain. There will be R10billion set aside by the Industrial Development Corporation over the next five years for women empowered businesses. It is imperative that such commitments are accompanied by policies and regulations that are enabling in nature. The challenge that comes with such promises, is that they lack in implementation. The red tape that comes with the projects makes the benefits inaccessible to the grassroots levels thus resulting in the status quo where very few of the targeted women empowered businesses end up benefitting from the initiatives. True to the President’s words in the SONA the cabinet approved the Public Procurement bill for comment on the 18th February which is hoped to provide more flexible legislation for preferential procurement. ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  Will accounting be completely automated using artificial intelligence? And will this spell its end as a sensible career choice for school pupils? Not at all, assures Professor Rashied Small, Executive: Thought Leadership and Faith Ngwenya, Technical Executive, both from the South African Institute of Professional Accountants (SAIPA).
According to Ngwenya, AI will definitely take mundane, repetitive work away from accountants and free them to tackle the more exciting parts of their job. “AI is good at performing tasks that don’t change much and even improves on them,” she says. “But when it comes to managing a turbulent business environment, nothing can compete with human intuition.” So what can pupils expect if they pursue a career as a future-ready Professional Accountant? Business advisor “Professional Accountants are well positioned to serve as strategic business advisors because, of all the management functions, only they are exposed to the full body of business data,” says Professor Small. Accountants will soon move their attention from ledgers and journals to people and problems. Their new skills will include creativity, communication, presentation and collaboration, to better help their employers or clients solve complex business problems and develop smart solutions. They’ll also use new technologies, like AI and data analytics, to enhance their services. Accountants also make good entrepreneurs because they understand business and how money flows through it, and, as consultants, they play a key role in economic development, performing equally well in any sector. The accounting career Technology will help accountants achieve a better work-life balance - the days of working nights over year end will soon be a thing of the past. As a career, accounting offers a very respectable income and affords practitioners a wide range of career opportunities, such as becoming a CFO or financial director, starting their own practice, or providing tax consulting services. How to become an accountant An important part of becoming an accountant is obtaining a professional designation, like SAIPA’s Professional Accountant (SA), because it proves one’s competence to prospective employers and clients. That means following the Institute’s prescribed study path, which requires a pass in high school accounting and maths, and completing three years of practical training after graduating. After that, if you pass its written Professional Evaluation exam, you’ll be granted membership in the Institute and awarded the title of Professional Accountant (SA). Who is SAIPA? With over 12,000 members, SAIPA is South Africa’s largest professional body representing accountants who do not perform auditing. The Institute is a full member of the International Federation of Accountants (IFAC) and a founding member of the Pan African Federation of Accountants (PAFA). While interest in accounting at schools has dropped over the last decade, the demand for competent accountants in business and government has not. “As a leading institution of Professional Accountants, we want to ensure there are enough to serve the economy in the future. So we encourage those pupils with an aptitude for numbers and business to consider this career path,” says Professor Small. School pupils are invited to contact SAIPA’s head office for advice on becoming a Professional Accountant. ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  December 9th was International Anti-Corruption Day. The annually observed event came into being after the United Nations Convention Against Corruption was passed in 2003 and raises awareness of the need to combat corruption on a global scale.
“With so many other days now reserved for special causes, it’s easy to let this one go by unnoticed,” says Shahied Daniels, Chief Executive at the South African Institute of Professional Accountants (SAIPA). “We encourage all members of the public, especially professional accountants, to recognise the need to quell misconduct at every level of society.” What is corruption? Corruption is a two-way street, comprising the party that corrupts and the party that becomes corrupted. Both are in the wrong. The corrupter uses various approaches to influence the latter to act in a manner contrary to accepted laws, policies, rules and regulations, in order to achieve some selfish end. These inducements can include abuse of their authority to command the target to submit, bribery to reward them for their compliance, or intimidation that causes them to fear for their livelihood or even their lives if they do not comply. Sometimes, the target may be a willing accomplice, believing their act will assure their standing with the corruptor. “In fact, corruptors are nothing more than common cheaters, who believe they can get away with stealing more than their fair share by defrauding the rest of us,” says Daniels. Building awareness December 9th should be used to build awareness of the effects of corruption. Daniels says anti-corruption organisations and concerned parties, including SAIPA’s own members, must especially take the opportunity to promote how to report corruption and to whom. Every organisation must also have systems in place for anonymously providing tips but, if those are ineffective, informants should be aware of alternative, independent channels to use. SAIPA is a founding member of the Anti-Intimidation and Ethical Practices Forum (AEPF) and can provide guidance to informants or targets of corruption who are under threat. Becoming an active combatant “If we use this one day to rally support but do nothing more afterwards, we’ve achieved very little,” warns Daniels. He urges anti-corruption supporters to take what they learn from the essence of this day and intentionally apply it throughout the coming year. “As a Professional Accounting Organisation (PAO), we have strong investigatory, legal and disciplinary structures in place to deal with misconduct,” says Daniels. SAIPA members are also required to sign an annual Code of Conduct and Ethical Pledge to preserve their good standing with the Institute. This ensures they remain conscious of their responsibility to act as good citizens within the Profession. We all need to do our part Being one of the country’s leading professional accounting organisations and an active leader in the war on corruption, SAIPA calls on the South African public to work with it to make lasting change. “From state capture to petty fraud, we can make a difference if we all do our part,” concludes Daniels. ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  On 28 October, the South African Institute of Professional Accountants (SAIPA) signed a Memorandum of Understanding with the South African Institute of Government Auditors (SAIGA). In attendance for the signing where Shahied Daniels, Chief Executive (SAIPA), Professor Rashied Small, Executive: Thought Leadership (SAIPA), Phillip Rakgwale, President of Council (SAIGA) and Russel Morena, Acting CEO (SAIGA).
Daniels says the accord formalises a number of reciprocal activities the bodies have agreed to engage in to each other’s benefit. “The MoU is an acknowledgment of the mutual respect each body has for the other’s role in promoting high quality accounting and auditing standards and practices within the public sector,” he says. SAIPA is an avid proponent of a strong public sector accounting function that adheres to the standards set out by its parent body, the International Federation of Accountants (IFAC), of which it is a full member. Also a member of the Pan African Federation of Accountants (PAFA), the Institute supports the full adoption of accrual accounting, the International Public Sector Accounting Standard (IPSAS) and other globally recognised accounting and reporting standards by government entities throughout the continent. Reciprocal activities Both bodies have agreed to acknowledge, support and promote each other as registered professional accounting organisations (PAOs). They will recognise SAIPA’s title of Professional Accountant (SA) and SAIGA’s title of Registered Government Auditor (RGA) as mutually respected professional designations at NQF Level 8 (comparable to an Honours degree). Of note is SAIGA’s commitment to provide SAIPA members operating in the public sector with a similar designation. If a member of one body attends a continuous professional development (CPD) event hosted by the other, any CPD points awarded will now be credited to that member and be recognised by the member’s body. “Members attending the other body’s events are making the effort to extend their professional intelligence and competencies, and we agree that their efforts should be rewarded,” says Daniels. They will also be able to attend the host’s events at its member rate, which is typically lower than its public attendance fee. In addition, the pact extends to advertising to each one’s members agreed-on training and development courses, programmes, workshops, seminars and related activities, as well as providing each other with marketing materials and articles to promote them. The bodies will partner in auditing and accounting initiatives, media releases about associated topics, and publications related to public sector financial management in South Africa and internationally. SAIGA will also advise SAIPA on new and updated legislation with the option of providing joint submissions. Finally, both bodies will provide corporate membership to each other. Open channel According to Daniels, public sector accounting will benefit greatly from the agreement between the two bodies. “It opens a channel of communication and collaboration between these specialised areas of practice - auditing and accounting - as well as traditionally separated private and public sector concerns,” he says. “I believe it will definitely accelerate the achievement of our shared vision of robust financial management in the public sector, especially by building awareness of our initiatives among our members and the general public.” ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  On 16 October, the South African Institute of Accountants (SAIPA) and the Institute of Certified Public Accountants of Rwanda (ICPAR) signed a Memorandum of Understanding (MoU). The agreement will see the two accounting bodies working closely to advance the Profession and provides greater mobility to each one's members operating in the other's country.
Says Professor Rashied Small, Executive: Thought Leadership at SAIPA: "We're very pleased to welcome ICPAR into SAIPA's growing network of collaborators who share our vision of enforcing strong accounting standards and practices throughout Africa and across the planet." Dual membership An important aspect of the agreement is that it entitles members from one body to be awarded membership in the other. This allows for greater mobility between the two institutes’ countries, ensuring that members working in either are able to continue practicing without undue delay or requalifying. The agreement therefore acknowledges the degree to which the bodies’ professional designations conform to the standards demanded by their parent, the International Federation of Accountants (IFAC), of which SAIPA is a voting member. Members still have to apply for the additional affiliation, and present their home institute’s certificate of membership as well as a letter of good standing. Both organisations are also members of the Pan African Federation of Accountants (PAFA). Shared interests According to Professor Small, apart from introducing dual membership, both bodies have agreed to exchange knowledge, share resources and carry out joint research to their mutual benefit, with the primary objective of serving and protecting the public interest. Another important goal will be to ensure each remains relevant in the Fourth Industrial Revolution era by cooperating on developing knowledge, expertise and continuous professional development (CPD) programmes that embrace the digital transformation of accounting. The bodies are also committed to sharing technical expertise to facilitate compliance with their Statements of Member Obligations (SMOs). IFAC members must implement its operational requirements embodied in seven SMOs, including quality assurance, international educations standards, international standards of practice, adoption of its code of ethics, public sector accounting standards, investigations and disciplinary processes, and international reporting standards, including IFRS. More CPD opportunities To enhance professional development, the bodies agreed to share CPD programmes and encourage their members to attend each other’s events. They’ll combine their CPD databases to give both access to the most relevant presenters, organisers, trainers and expertise when developing events. CPD points acquired by members attending the other PAO’s events will now be recognised by the home body. “For example, Rwandan practitioners who attend SAIPA’s annual Accounting INdaba can claim their CPD points as their would when attending an event in their own country,” says Professor Small. Mutual respect Above all, the agreement signifies mutual respect and trust between the bodies. It increases their solidarity in helping their respective countries evolve from colonial-era accounting to a truly African approach to financial management and reporting. “Innovations in accounting practices that serve the unique economic aspects of our vast continent are only possible by maintaining open channels of communication and cooperation,” says Professor Small. “This MoU between SAIPA and ICPAR is yet another critical step towards realising that ambition.” ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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 of Professional Accountants (SAIPA) recently announced the provincial winners of its 2019 National Accounting Olympiad (NAO). Several schools took winning spots in both the Grade 11 and Grade 12 categories.
“From feedback, we know the competition is a valuable indicator against which pupils and their schools can measure their progress,” says Faith Ngwenya, Technical and Standards Executive at SAIPA. The best performing schools, with first or second place winners in both grades, were C & N Sekondêre Meisieskool Oranje in Free State, Khanyisa Education Centre in Limpopo, Middelburg Hoërskool in Mpumalanga, and Rondebosch Boys High School in Western Cape. According to Ilse Olivier, accountancy teacher at C & N Sekondere Meisieskool Oranje, the NAO provides scholars with a unique challenge that helps prepare them for exams. “It teaches pupils to think outside the box when dealing with unfamiliar questions and gives them confidence that they really can do well academically,” she says. Her school has faithfully participated in the competition for the last 10 years. Lloyd Nel, Head of Accounting/EMS at Rondebosch Boys High agrees. “It’s a good opportunity for the boys to test themselves, see where they are, and open their eyes to what other questions could be asked,” he says. Nel also believes the competition encourages students to take accounting by building awareness of the subject. For Stephen Ampong, accountancy teacher from Khanyisa Education Centre, it’s a chance to highlight his school’s outstanding record of a 100% matric pass rate over the last 25 years. Says Ampong, “We want to prove that being a rural school does not mean you cannot be a winner.” He holds extra classes on Saturdays specifically to help his students prepare for the NAO. Lastly, Hannelize Adendorff, accountancy teacher at Middelburg Hoërskool, commends SAIPA for a well-organised contest: “We will definitely be entering the 2020 competition.” Ngwenya says the Institute is delighted with the level of achievement among provincial entrants. “We believe that, apart from contributing to a sufficient supply of accountants for the future, the contest provides an outcomes-based platform that helps children think for themselves and assert their academic identity,” she says. She asks teachers to check the SAIPA website regularly for NAO 2020 registration dates. ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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   Photo Caption: Grade 12 Winners
(B/L) Shaun Alex, Matimu Mabunda, Taariq Mowzer (F/L) Eden Walters, Iman Jhetam, Tebogo Malope On Thursday, 10th October, the South African Institute of Professional Accountants (SAIPA) hosted a special awards ceremony to honour the Top 3 national winner positions of its National Accounting Olympiad (NAO). The event took place at the Birchwood Hotel & OR Tambo Conference Centre in Boksburg, Gauteng. Held every year since 2002 at schools across the country, the NAO allows Grade 11 and 12 pupils studying accounting to compete for one of three top places per grade. According to Faith Ngwenya, Standards and Technical Executive at SAIPA, participation in the increasingly popular contest exceeded expectations. “Over 5,700 pupils wrote the test this year,” she said. “We’re very happy with the turnout and we’re anticipating even more entrants next time.” The winners In the Grade 12 category, Matimu Mabunda from Khanyisa Education Centre and Taariq Mowzer of Fairbairn College shared joint first place. Likewise, Justin Knopfmacher and Jesse Drieband of King David High School, along with Gilad Kangisser of Yeshiva College tied for second place. There was an astounding 6-way tie for third place between Iman Jhetam of Lenasia Muslim School, Shaun Alex of Umtata High School, Eden Walters of Middelburg Hoerskool, Alexa Msakiwe of Springfield Convent School, Chris Dean of Rondebosch Boys High School, and Tebogo Malope of Reitumetse Secondary School. In the Grade 11 category, Nicole De Jager of St. Mary's Diocesan School for Girls took first place, and Veren Naidoo from Rondebosch Boys High School placed second. Once again, third place saw a 6-way tie between Nadine Steyn of Maragon Mooikloof, Zintle Mshoadiba and Manelisi Ncube of Phoenix College of Johannesburg, Vaishnavi Maharajh of Durban Girls High School, Vinil Keshav of King Edward VII School, and Ruan Roodt of Hoërskool Brandwag. “The playing field was definitely shaken up this year,” comments Ngwenya. “First, the number of joint winners shows how tight the competition really was. Also, where KZN cleaned up last year, this time it was Gauteng that rose to the challenge with the most winners. And, just looking at the diversity of schools in top positions, it's clear that everyone brought their A-game in 2019. Well done!” A worthy initiative According to special guest, Percy Masango, Chief Education Specialist for Commercial Subjects at the national Department of Basic Education, the NAO meets a critical need. “Commercial subjects have been declining over the years. Initiatives like this really generate interest in learners to study the subject. We’d like to thank SAIPA for organising the competition and hope to see it grow,” he said. Stefaan Grobler, Accounting Teacher to Grade 11 first-place winner, Nicole De Jager, said those who win are an inspiration to pupils in lower grades: “There is a role model system among students so juniors look up to successful seniors, especially the example they set and their work ethic.” First place Grade 12 joint-winner, Matimu Mabunda, said the NAO had confirmed his desire to pursue a degree in accounting and a career as an accountant. “I will definitely join SAIPA to become a Professional Accountant (SA),” he added. Inspiring future accountants According to Ngwenya, the NAO plays a critical part in SAIPA’s strategy to promote accounting as a career of choice among school pupils. “Without enough pupils deciding to become accountants today, the capacity of the Profession would suffer in the future,” she said. She congratulated the winners and encouraged all schools to register their accounting champions in 2020. Photo Caption: Grade 11 Winners (B/L) Veren Naidoo, Ruan Roodt, Manelisi Ncube, Vinil Keshav (F/L) Nicole De Jager, Vaishnavi Maharajh, Zintle Mshoadiba, Nadine Steyn Photo Credit: (c) Jade Photography END MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  Whilst financial emigration may be a viable option for a small minority of individuals, for the majority, it’s likely to be a costly exercise which won’t in the long-term provide significant tax relief.
Authored by: Ettiene Retief, Chairman of the National Tax and SARS Committee at the South African Institute of Professional Accountants (SAIPA). Recent news reports have provided conflicting – and even wholly inaccurate – information around the implications for expats to the scheduled March 2020 change to the Income Tax Act. Alarmingly, a number of tax practitioners and financial advisors have been recommending that people financially emigrate in order to avoid the expat tax the revised Act has implemented. And while financial emigration is a viable option for a small minority of individuals, for the majority it’s likely to be a costly exercise which won’t in the long-term provide significant tax relief. What exactly is financial emigration? Financial emigration is the process whereby taxpayers change their status with the South African Reserve Bank (SARB) from resident to non-resident. It’s a process conducted purely for exchange control purposes, but which does not affect your citizenship status in any way. Emigration, on the other hand, is a very different process as it involves physically relocating from one country to another country either in the short or long term. Once emigration has become a permanent status, the process of financially emigrating – during which time the individual’s assets move from their old country of residence to their new country of residence – takes place. The mistake many people are currently making is that they are expecting financial emigration to resolve their issues around paying tax in South Africa on income earned abroad, a so-called ‘expat tax’. The reality, however, is that financial emigration for most individuals won’t provide material tax savings. Historical context It’s not uncommon in this modern era to find individuals who have primary residence in one country but who work and earn income in at least one other country. The question is, where do they pay tax? There has been a global acceptance that it’s not fair to expect individuals to pay tax in both their country of residence and in the country in which they earned the income. As a result – and in order to relieve the burden of paying double tax – it became acceptable practice that the country in which the income was earned has the right to charge tax, in which case the income then became exempt from tax in the individual’s country of residence, or the country of residence provided a credit for the tax paid in another country. Section 10(1) (o) (ii) of the Income Tax Act is the section which provides this particular tax exemption to South African expats on their foreign income. The proviso, however, is that they need to be outside the country for a total of more than 183 days, of which at least 60 days are consecutive days in any 12-month period. Individuals who met these conditions were effectively exempt from paying tax on their income in South Africa. However, while the exemption clause was intended to protect individuals from being doubly taxed, it was never intended to relieve taxpayers of double non-taxation. The reality, however, is that some individuals are using this clause to avoid paying tax in any jurisdiction. The United Arab Emirates, for example, has no direct tax requirements in place. South African expats working there could, therefore, in theory, avoid paying any tax at all, whilst still retaining their South African residency. In response to this trend, the South African Revenue Service (SARS) announced that it intended removing this exemption but as a result of public pressure, has agreed to delay its removal until March 2020. Understanding the changes to the Income Tax Act Once the amendments to the Income Tax Act come into effect in March 2020, South African tax residents working abroad will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter they will be required to pay tax on any foreign earnings. The revised Act does, however, make provision for expats working abroad who are registered for tax in those countries. In these instances, the Act allows those individuals to apply for credits in South Africa which are offset against the tax they owe locally, with the tax rate starting at the lowest rate. The reality, therefore, is that South Africans working abroad will in most instances not be significantly negatively impacted by the changed regulations and will still not be doubly taxed. The only individuals that will be detrimentally impacted are those earning very large amounts offshore and even in these instances, they will still only be paying the same amount of tax they would have been paying in South Africa in any event. What’s important to understand is that to all intents and purposes the law has not changed but has instead just corrected a loophole. It would be counter-intuitive to allow South African residents who spend the majority of their time in the country and have the majority of their assets here, to avoid paying tax locally. South Africa’s tax regime is based on a residence-based system and is evaluated according to how much time you spend in the country, where your assets are based, where your family resides most of the time, and where the country in which your primary residence is situated. South African residents who work abroad permanently and spend the majority of their time living abroad would already be considered non-residents from a tax perspective. Remember that it is possible to change your tax residency without having to financially emigrate. When is financial emigration a good idea? While financial emigration is not a means of avoiding the expat tax, there are limited circumstances when it is a viable option. A viable reason for emigrating financially is in order to access your retirement funding earlier or to shift an inheritance offshore. However, what an individual should not forget is that it is possible to make use of the R10 million foreign investment allowance without having to financially emigrate. Now that foreign income above R1 million is no longer exempt from tax, the authorities are concerned not just with income earned abroad, but also the value of fringe benefits, including accommodation, which the individual has received. The addition of fringe benefits can quickly launch an individual over the R1 million threshold. This is something of a contentious issue, particularly if the taxpayer is working in a developing country and is subjected to very basic, but often fairly costly, accommodation, which you are then taxed on. A SARS tax compliance certificate is required should an individual decide to emigrate. There are three types of compliance certificates that an individual can apply for. These are as follows:
There are downsides to financial emigration What recent news reports encouraging individuals to emigrate financially in order to avoid the expat tax have failed to reveal is that financial emigration is an expensive exercise. There is a huge tax implication involved in changing an individual’s tax residency. By financially emigrating an individual is deemed to have disposed of all their assets in South Africa, which means that capital gains tax starts applying. Should the individual decide at some future point to financially emigrate back to South Africa, the individual would not get that money back. To avoid South African taxation rules, an individual would need to first change their tax residency – financial emigration is the very last step and even then, it’s not an essential part of an amended tax residency given that it is only an exchange control provision. Emigration and financial emigration only comfortably overlap when a taxpayer is legitimately emigrating. The latter doesn’t work if the individual intends to continue residing in South Africa. Conclusion Before deciding to financially emigrate the individual taxpayer must make sure all the facts are at hand. Understand the cost and long-term implications and carefully consider these before deciding on this route. The individual taxpayer must be certain that it is a permanent move. Does the individual have a long-term visa, a residency permit or is being sponsored to put down roots in a different country? To financially emigrate as a South African resident in order to avoid a small amount of tax is probably not a wise decision. Even if the taxpayer is legitimately emigrating, they shouldn’t financially emigrate until they are totally convinced that this is a long-term decision. Individuals should also be particularly wary of service providers offering to help with financial emigration who don’t mention the significant cost associated with this. Those individuals that are considering pursuing the financial emigration route should take the time to understand the real cost implications and do their homework thoroughly. ENDS MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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  A recent report from Israeli blockchain portfolio platform, Blox, reveals that a new breed of digital-savvy accountant is emerging. These blockchain boffins are arriving not a moment too soon, as tax authorities around the world begin clamping down on cryptocurrency disclosures.
Faith Ngwenya, Technical and Standards Executive at the South African Institute of Professional Accountants (SAIPA) welcomes a similar trend locally. “As the use of cryptocurrency grows and the regulations governing it are refined, users may need to prove they have met their past tax obligations,” she says. “Without accurate accounting records and correct tax submissions, they could find themselves in hot water with SARS.” Not a currency! It’s important to recognise that cryptocurrency is treated differently in various part of the world. In some countries, like the US, it is legal but is not considered a currency. In others, like Morocco, all virtual currencies are prohibited under law. And some, like Canada, prescribe regulated use while banning it from banking transactions. In South Africa, it’s not legal tender (only the Reserve Bank can issue currency) but an intangible asset and is taxed in relation to how it is traded. Tax treatment According to SARS, taxpayers dealing in cryptocurrency will be taxed differently depending on the type of activities they perform. These include issuing a cryptocurrency, mining transactions, speculating, and doing business using the currency as a medium of payment. In general, where it is bartered in exchange for goods or services in the course of business, it is taxed under “gross income” and deductions can be claimed against the effort to earn it. When it is speculated on, CGT rules come into play. If an employer pays staff in cryptocurrency, it will be taxed as normal income. The exact treatment will depend on the specific use as determined by SARS. A virtual ledger? Also, the so-called “distributed ledger” associated with a basic blockchain system bears little resemblance to the typical general ledger used by accountants. The latter posts balancing debit and credit transactions into appropriate accounts that are themselves grouped into financial reporting categories. A blockchain entry may hold little more information than “User A sent X units of cryptocurrency to User B on a given date”. In the accounting sense, it’s not even a virtual journal, but rather a record of original entry. “Like any source documents, these transactions need to be extracted and recorded in a formal financial ledger to correctly determine one’s tax obligation,” says Ngwenya. Growing demand As more users become aware of the risk of not keeping their cryptocurrency affairs in order, the demand for crypto-smart accountants is on the rise. Many Professional Accountants have already responded by getting to grips with not just the mechanics and processes behind blockchain but also the growing body of regulations evolving around it. “While there is a steady growth in the number of practitioners who can provide financial and reporting services around blockchain, the level of their expertise varies,” says Ngwenya. “It is always best for those seeking assistance to determine how knowledgeable their Professional Accountant is about these matters.” END MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@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 |
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