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6 Threats to Business in 2013

Risks aren’t always immediate to your business, sometimes macro-factors can impact you in ways you hadn’t considered.

Alison Job

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The last days predicted by modern-day Mayans failed to arrive on schedule. “In fact, the risks we all face as we go into 2013 are much more complex, and thus much more difficult to counter,” says Michael Davies, CEO of ContinuitySA.

“It is almost impossible to consider individual risks without taking the overall risk into consideration,” Davies observes. “Globalisation and the profound connectedness between individuals, companies and countries promoted by technology means that risk, too, must be seen broadly.”

Davies and members of his executive team have identified six business risks for 2013.

1. Social malfunction grows. Across the world, it is increasingly clear that established certainties and beliefs about how the world is structured are becoming fluid. There is an overall loss of faith in society’s institutions and their ability to deliver a just world order.

In South Africa, persistent dissatisfaction with service delivery has exploded into widespread and violent protests against the very nature of the system. The miners’ revolt in Marikana has been a watershed event, as it bypassed both the settlements negotiated by the miners’ own representatives and the normal processes of democracy. Democratic process, it seems, is either profoundly misunderstood or mistrusted.

This impatience with society’s existing institutions and processes appears to be spreading and there are worrying signs that even the middle class, on whose shoulders society’s prosperity and stability ultimately depend, are also losing faith in basic concepts.

The extreme passions roused by the ongoing e-toll saga in Gauteng is an obvious example of this trend. For the middle classes, this type of feeling generally translates into a reluctance to pay tax, an action that can fatally undermine the state itself.

2. Global economic and financial volatility. It appears that the 2008 financial crisis is both more far-reaching and profound than first expected. Markets and economies seem unable to regain an even keel, and many commentators are seeing this volatility as “the new normal”. The flipside is an increasing regulatory burden as governments and other institutions attempt to rein in uncontrolled capitalism and protect investors.

For South African businesses, important associated risks are the volatility of commodity prices, greater competition internally and in export markets, and an unstable currency.

3. Environmental risk. If volatility is the new economic normal, then there is every indication that climatic volatility is also becoming a feature of life. For South Africa, climate fluctuations may be expected to increase the risk of water and even food shortages.

Thus far, global and national environmental initiatives are gaining traction too slowly, and seem likely to add to the cost of doing business in the short term—giving rise to a classic case of how to balance short- and long-term risk.

4. Infrastructural risk. A common African business risk is inadequate and poorly maintained infrastructure. Water and power are the two obvious risks that threaten business, but the road and rail networks also present challenges.

Government efforts to address these problems are affected by the principle of interconnectedness: opposition to e-tolling, one feels, is more influenced by wider dissatisfactions rather than the principle of “user pays”.

Many South African businesses are taking extraordinary measures to mitigate infrastructural risks by assuming responsibility for all or some of the infrastructure needed for their projects. Property developers, for example, are often providing roads and sewerage, and factories some of their own energy—and think of corporate involvement in points people to ameliorate the effects of faulty traffic lights and schemes to fill in potholes.

5. Data risk. Data is becoming more important as a way for companies to assess risk and compete more effectively—this is the phenomenon of Big Data. It’s probably true to say that most companies are still coming to terms with the concept and, more importantly, how to use data effectively.

Nonetheless, data privacy regulations have already sprung up to protect personal data, creating a set of risks relating to data security. One is the growing menace of cybercrime. Another is the whole question of data sovereignty—as companies try to safeguard their data while reducing costs, they may opt for the security of cloud solutions.

However, when those data centres are located and/or owned offshore, it becomes difficult to be sure of data security and accountability for lapses.

An associated risk is the peaking trend of IT consumerisation, so-called BYOD (bring your own device—the use of private mobile devices to access corporate data). BYOD offers both advantages and disadvantages: boards and their CIOs need to think carefully about how to protect their data against potential threats—and how to use the available technology wisely to obtain a competitive advantage.

6. Business continuity remains misunderstood. Risk management has definitely become integrated into the corporate agenda, and is maturing. This may be seen by the replacement of the existing BS25999 standard by ISO22301.

The BS25999 standard set the standard for business continuity management, but the new ISO223301 standard is much more detailed in its requirements, and requires much more documentation of the processes followed. It also requires committed board-level leadership, thus effectively putting risk management into the spotlight.

However, in practical terms, the broader concept of business continuity management is becoming absorbed into the IT budget, with a concurrent diminishing of focus on operational matters. At the same time, budgets in general are under pressure.

“Ironically, then, the biggest overall risk has become corporate myopia about the true nature of risk—and this at a time when risk has become much more integrated into corporate strategy. Boards must resist seeing risk in terms of technology alone. Business continuity is a much more useful concept, one that takes into account the interconnectedness of risk today. When considering risk, business leaders need to take a broad view of organisational resilience before honing in on their particular company’s situation,” Davies concludes. “Risk is now systemic, and so the approach to risk must also be systemic and have operational relevance to the organisation.”

Alison Job holds a BA English, Communications and has extensive experience in writing that spans news broadcasting, public relations and corporate and consumer publishing. Find her at Google+.

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Entrepreneur Today

3 Stealthy Tax Hikes Payroll Managers And Employees Need To Take Note Of

By Rob Cooper, tax expert at Sage, and chairman of the Payroll Authors Group of South Africa

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“Dammed if you do and dammed if you don’t.” 

The adage summarises the difficult decisions government and the Finance Minister faced when balancing the country’s books, rescuing state-owned enterprises, and reviving the growth of our economy. Given the economic pressure that most taxpayers are facing, government ideally needed to achieve all of that without direct increases to personal income tax in the most recent Budget Speech.

Personal income tax has comprised at least a third of South Africa’s total tax revenue in recent tax years, despite growing unemployment. The 2019 Budget, presented in February, forecasts that personal income tax will account for nearly 39% of tax collected during the upcoming (2019/20) tax year. Given that we are in an election year and that the tax base is fragile, it’s not surprising that the Finance Minister and the National Treasury avoided direct increases to the statutory tax tables used to calculate PAYE for employees in the budget.

Nonetheless, government has made inflation work in its favour to impose some tax increases by stealth. Here are three ways government is raising more revenue without direct tax increases:

1. Bracket creep

The statutory tax tables used by payrolls and employers have not been changed for 2019/20, nor have the brackets been adjusted for inflation. This effectively amounts to an indirect tax increase that will yield a revenue saving of approximately R12.8 billion for government’s coffers.

It is not unusual for government to use ‘bracket creep’ to effectively raise more revenue. But unlike previous tax years, even low- and middle-income earners are not getting much relief. Rebates and the tax threshold are being increased by small amounts to allow some relief, but many people this year will feel the pain as inflationary salary increases push them into a higher tax bracket.

2. Medical aid credit not adjusted for inflation 

As proposed in the 2018 Budget, the Finance Minister did not apply an inflationary increase to the Medical Tax Credit, which allowed him to raise an extra R1 billion in revenue for the year. Surprisingly, these funds will be allocated to general tax revenue rather than ring-fenced for healthcare. In previous tax years, revenue generated from below-inflation increases on medical scheme credits was used to fund National Health Insurance (NHI) pilot projects.

There is still no clarity on how the NHI is going to be funded except for a general statement that the funding model is a problem for the National Treasury to solve, and that the principles of cross-subsidisation will apply. One wonders if any real progress will be made soon, given the fiscal constraints government faces.

3. Business travel deduction left untouched

The Budget leaves the per-kilometre cost rates used to determine tax deductions for business travel untouched. By not increasing travel rates to account for inflation, government effectively increases income tax collection at the cost of the taxpayer. This will be a blow for people who need to claim from their employers for business travel in their personal vehicles. This change has slipped through largely unnoticed and the budget does not provide numbers for the expected increase in tax revenue.

Closing words

Amid political turmoil and uncertainty, the Finance Minister presented a balanced budget for 2019/20 that offers hope for the future along with some tough love. With government taking steps to accelerate economic growth and improve revenue collection, we should hopefully see a steady improvement in government finances, which will translate into less pressure on the taxpayer in future years.

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Entrepreneur Today

SMEs: Staying On The Right Side Of The Taxman

Remaining SARS compliant can be a constant challenge for small- to medium-enterprises (SMEs), especially when they are trying to focus on growing their businesses and streamlining their operations.

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EasyBiz Managing Director, Gary Epstein, says submitting taxes can be a seamless process that does not have to take up more time than is necessary. “If business owners understand what is required of them and they put a few processes into place to deal with their tax submissions properly, their lives will be so much easier.”

What are the top three considerations for SMEs when submitting tax returns?

“Firstly,” says Epstein, “SARS returns must be accurate and submitted in terms of the relevant Act. Secondly, returns should be submitted and paid on time to avoid unnecessary penalties and interest, and thirdly, business owners must follow up on queries issued by SARS. “Do not ignore these queries, act on them as soon as possible”.

What are the major SARS submission deadlines for SMEs?

Epstein points out that small business owners need to adhere to various tax deadlines, each with their own particular dates for submission. “It is important that business owners diarise the dates (and set advance reminders for themselves) and/or enlist the services of an accountant or financial adviser to help them keep abreast of requirements.”

Value-added tax (VAT)

VAT payments need to be submitted in the VAT period allocated to the business, according to various categories and ending on the last day of a calendar month. This may mean making payments once a month, once every two months, once every six months or annually, depending on the category.

Provisional taxes

Provisional tax should be submitted at the end of August (first provisional) and at the end of February (second provisional) – for February year-end companies.

Employee taxes

In addition to submitting an annual reconciliation (EMP501) for the period 1 March to end of February for Pay-As-You-Earn (PAYE), Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF), employee tax, in the form of an EMP201 return, needs to be submitted by the seventh of every month.

When can SMEs get extensions and is it worth it?

Epstein says SMEs can apply for various extensions, but these are subject to the Income Tax Act and Tax Administration Act.

“It is best for SMEs to consult their tax professionals to get advice regarding extensions for their businesses.”

What is SARS not flexible about?

SARS is not flexible when it comes to late returns and late payments.

“I cannot stress enough how important it is for SME owners to ensure their tax returns are submitted on time. In this way, they will avoid the inconvenience and expense of additional fines and interest,” notes Epstein.

What skills do SMEs need in their organisations to be able to submit to SARS efficiently?

Business owners often don’t have the time or expertise to deal with tax submissions throughout the year. If the business cannot afford to employ a full-time accountant or financial services expert, it would do well to outsource its tax requirements to a registered tax practitioner.

“I would recommend that even if they are not submitting the tax returns themselves, business owners should have a broad understanding of the tax regulations and what is expected of them. There is a lot of helpful information on the various Acts and tax requirements on SARS’ website,” says Epstein.

How does the right software help SMEs remain SARS compliant?

SME’s (and their accountants’) jobs can be made easier by using reliable accounting software to calculate accurate VAT reports. These reports are only as accurate as the data entered into them, which means care needs to be taken when inputting data into the accounting programme. Epstein says a good accounting software package must be reliable, easy to use and functional.

“SMEs need to check that the software has thorough reporting capabilities and can interface with other software solutions. Of course, it is also important to find out whether the software is locally supported by the vendor or not.”

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Entrepreneur Today

4 Dangers Of Business Under-insurance

A common short-term insurance peril that many SMEs face when submitting a claim following an insured event is the risk of being underinsured.

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Malesela Maupa, Head of Products and Insurer Relationships at FNB Insurance Brokers says, many small business owners mistakenly believe that by merely having a short-term insurance policy in place they are adequately protected against unforeseen events.

“This is technically correct provided that the business is covered for the full replacement value of the items insured. However, in circumstances where the sum insured does not cover the full replacement value or material loss of the item insured, the business is underinsured,” explains Maupa, as he unpacks the dangers of business underinsurance:

1. Financial loss

The most common risk is financial loss on the part of the business. If the business is underinsured or the indemnity period understated, the short-term insurance policy will only pay out the sum insured for the stated indemnity period as stated in the schedule, with the business owner having to provide for the shortfall. This often leads to cash flow challenges, impacting profit margins or rendering it difficult for the business to recover following the financial loss.

2. Reputational damage

Should an underinsured business not have sufficient funds to replace a key business activity or critical component following a loss, this may impact its ability to fulfil its contractual obligations, leading to a loss of business or market share, and irreparable reputational damage in the worst-case scenario.

3. Legal action

A small business also faces the risk of customers or clients taking legal action against it, should it fail to deliver on goods and services following a loss or be unable to honour its financial commitments that they committed to prior to the loss.

4. Survival of the business

A catastrophic event such as fire, which could result in the loss of stock or company equipment and documentation, could threaten the survival of a small business that is not yet fully established, if the business assets are not adequately insured.

Working with an experienced short-term insurance broker or insurer is essential when taking up short-term insurance to ensure that business contents are covered for their full replacement value.

Furthermore, depending on the nature of the business or item insured, the policy should be reviewed on a regular basis to avoid underinsurance as the value of items often change overtime due to fluctuations in economic activity. Where it’s necessary, evaluation certificates need to be kept up to date.

“Lastly, SMEs should ensure that the sum insured does not exceed the replacement value, which would lead to over insurance. Should a business submit a claim following a loss, the insurer would only pay out the replacement value, regardless of the higher sum insured,” concludes Maupa.

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