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March 2016

INTRODUCTION

Enough has been written about the Constitutional Court ruling, the Guptas and the irresponsible and corrupt behaviour of the president and certain of his ministers to fill more than one book. Of concern, is the impact that this will have on our economy and the effect on the average South African.

DEADLINES

Annual Duty – one calendar month to the day after the incorporation date

Promotion of Access to Information Act manual – 31 December 2021 extended yet again!

Tax returns

Tax clients should note that unless we receive all the relevant data and documentation at least fourteen days before the applicable submission deadline we cannot be held responsible for any punitive action taken against them by SARS.

Excel Tips

The ability to give names to sections of a spreadsheet may prove to be a time saving factor. Let us suppose that a worksheet consists of a section for the income statement, another for the balance sheet and still another for the cash flow report. By assigning those names to the cell range that relates to each report you will be able to move rapidly from one report to another and use the feature to print the required report. In earlier versions of Excel, you need to select the range of cells to which you wish to assign a name. Then, with the range highlighted, click on insert, then names and then define. (Alt+I+N+D). In later versions, CTRL+ALT+F3 has the same effect. Type the name in the box with a flashing cursor and click OK. Follow those steps for each section that you wish to name. With your cursor in the box reflecting the current cell number, click on the red down arrow next to the cell number. A list of names will appear. Clicking on a name will take you to that section. What is more, the section will already be highlighted. By typing ALT+T+S, you can select the highlighted area as that which you wish to print. Thereafter, you simply click on the print icon.

TAXATION

Trusts

Presently, taxpayers are able to transfer property to a trust by way of granting the trust an interest free loan in order to finance the asset acquisition. This has the effect of preventing any further increase in the seller’s estate for estate duty purposes as instead of holding property, which appreciates in value over time, the seller’s estate will include the interest free loan capped at the value of the property at the date of the transfer, less any repayments. There are even ways to reduce the value of the loan over time thus denying the state the estate duty on the appreciated value of the asset transferred. In addition, the interest-free loan mechanism disguises what, to all intents and purposes, is, in essence a donation to the trust that should have been subjected to donations tax under normal circumstances.

To alleviate the loss of both estate duty and donations tax, it is proposed that interest free loans are categorized as donations and subject them to 20% donations tax and, upon the death of the person who transferred the asset to the trust to include the market value of the asset in his/her estate for estate duty purposes.

As no amendments to the Estate Duty Act and to the sections of the Income Tax Act pertinent to donations have been released, it would be purely speculation to forecast when these amendments are likely to be introduced and whether any or all would be introduced retrospectively. However, it is advisable for those client who have made such loans to start charging market related interest thereon but before doing so consider the income tax implications for both the trust and the individual arising from the inclusion of such interest in their taxable income.

VAT

When a client has been subjected to a VAT audit, in the past, a common problem has been the disallowance of input tax claim on invoices that did not bear the words “Tax Invoice”. Such disallowance resulted in penalties and interest being imposed. It also necessitated the vendor requesting an amended document so that the claim could be made in a subsequent period.

With effect from 8 January 2016, in terms of amendments to Sections 20 and 21 of the Value Added Tax Act, this requirement falls away and the expressions “invoice”, “VAT Invoice” and “Tax Invoice” will be acceptable. Also removed from the provisions of the Act is the requirement that these expressions appear “in a prominent place” on the documents. Similar amendments have been made to the requirements for debit and credit notes.

The following must still be shown on documents, of a value in excess of R 5000, that are to be used to support a claim for input tax:

·         The VAT registration number of the supplier

·         The VAT registration number of the purchaser, if applicable

·         An individualized serial number

·         The date of issue of the document

·         A description of the goods and services provided

·         The quantity or volume of the goods and services provided

·         The value of the supply either exclusive or inclusive of VAT

·         Where the value of the supply includes VAT, a statement to that effect and the amount of VAT so included

·         Where the value of the supply excludes VAT, the total of the value exclusive of VAT, the value of the VAT levied thereon and the aggregate of these two amounts

BUSINESS

Debt collection

Given the need to contain expenditure as a result of current economic trends, it is equally important to monitor and effectively control the granting of credit and, once granted, the compliance with the terms thereof.

Before granting a credit facility, it is vital to conduct a thorough investigation into the applicant’s credit worthiness. This can include requesting the applicant’s current suppliers to provide a reference, obtaining a bank reference and obtaining a formal report from an accredited credit bureau.

Thereafter, if the facility is granted, it is imperative that the terms thereof are clearly spelt out, agreed to and complied with. The consequence of any infringement of the terms must be defined and rigidly applied.

Monitoring compliance may take various forms. These include:

·         Friendly calls and reminders – these are preferable where the client is a regular and important customer and one who has not regularly abused the facility. Such calls may be the responsibility of a designated member of the accounts department.

·         Withholding supply of goods or services – the exercise of this option should be by someone higher up the management tree and someone who is familiar with the client, his/her likely reaction and the impact on and importance of any future relationship.

·         The legal approach – The cost effectiveness of this approach should be considered before committing to this line of action. Legal services are costly and the decision to take such action should not be taken as a purely punitive measure if it is unlikely to result in a cost effective result. The first step is for the attorney to issue a letter of demand. Thereafter, the lawyer should be required to obtain your consent before each escalation of action.

·         Issue of summons – Whilst not too costly in itself, it will lead to steps that will result in higher costs.

·         Liquidation – this step should only be considered when the amount concerned is significant, the loss will have a dire consequence for your business and is likely to provide a reasonable percentage recovery.

ECONOMY

Not much has been written in recent months of how the economy was faring pre-Nenegate. Suffice is to say that, although not approaching free-fall, inflation was already hitting the pockets of the man in the street.

In the past few months, political matters have caused a considerable weakening of the rand and a consequent erosion of the buying power of Mr and Mrs Citizen. An upside to this has been a rise in savings that, to some extent, has been influenced by the touting of tax-free savings products arising from the 2014 budget. It is hoped that this trend continues. However, most commentators consider that unlikely as the ever-present threat of down-grading of the country’s investment status hangs over our heads.

Whether or not this happens is largely dependant upon the actions of the ruling party and its government. Certainly, the non-apology and comments by the ANC Secretary-General and the Speaker of Parliament do not negate the potential for a downgrade. Possibly the question is when and not if it will happen.

The actions of three banks and KPMG regarding the Guptas may have instilled some confidence in investors and rating agencies but it remains the responsibility of Gwede Mantashe to expedite his investigation of the alleged “state-capture” and to take action against that family and persons within his party found to have any significant involvement. An effective action in this regard may result in an improvement to the country’s credit standing and thus investor confidence.

Meanwhile, as the strike season approaches organised commerce and industry need to do their utmost to avoid to breakdowns in negotiations that can lead to violent demonstrations. Such events, including those against a lack of service delivery, most certainly detract from South Africa’s attractiveness as an investment destination.

In the meantime, we should all be making a concerted effort of tighten our belts.

On a positive note, there are signs that the Chinese economy is showing signs of stabilizing and this augers well for our export orientated industries. In addition, the rand has strengthened marginally against the dollar due to the influence of US economic data.

TAILPIECE

What I fear is that the liberators emerge as elitists .. who drive around in Mercedes Benz and use the resources of this country.. to live in palaces and gather riches” – Chris Hani – did he have a crystal ball?