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Consumer Protection Act a Fatal Blow for Entrepreneurs?

How does the CPA affect your business, and what can you do to mitigate risk?

Liz Zambonini

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As of 1 April 2011, South African consumers became some of the most protected in the world, thanks to the implementation of extremely progressive legislation which is comparative to those of developed markets.

The Consumer Protection Act (CPA) applies to the supply of all goods and services (including every role-player in the supply chain), as well as to the promotion and marketing of these goods and services. For the average South African who is weary of poor service delivery, they will be pleased to know that ‘goods’ include gas, water and electricity.

Intentions

The intention behind the legislation is to promote a culture of consumer rights and responsibilities, as well as to encourage business innovation and enhanced performance. In addition, it is hoped that regulations will improve access to, and the quality of, information that will enable consumers to make informed choices and protect them from hazards.

Companies not abiding by the CPA face penalties of a fine of up to 10% of turnover, or a fine and a prison sentence of up to 10 years where an order is not complied with.

While this legislation is a boon for consumers, concerns are being raised that it may signal the end for many small businesses and entrepreneurs however.

Too much legislation, particularly around compliance and corporate governance, kills innovation and an entrepreneurial spirit. Entrepreneurs need to be agile and able to adjust quickly to changing circumstance, but legislation such as the CPA will hinder small businesses. Exemptions should be provided for these entrepreneurial ventures as not only is it extremely difficult for someone who is getting their business off the ground to be fully informed about all of the complexities of the Act, but there is also a cost of compliance which many will not be able to afford.

As even boards of large companies are finding that they spend far more time talking about compliance than they do about strategy, one can only imagine what this change in the business landscape will do to entrepreneurs.

Far-reaching consequences

One of the areas which the CPA will affect is food, including safety, labelling and hygiene. While no-one will deny that these are all important elements in the production and packaging of foodstuffs, entrepreneurs who sell homemade goods to earn a living will in all likelihood find themselves unable to comply with the legislation.

The knock-on effect of the CPA will be enormous for small caterers. One example is that we at The Hope Factory support an entrepreneur by packaging and selling her baked goods, the income from which she uses to support her two sons who are at university. Unfortunately she cannot afford to comply with all of the aspects of the CPA – such as the food labelling requirements – therefore we have no choice but to discontinue buying her products. The ramifications of this are that her sons will not be able to finish their studies, which will have an extremely detrimental effect on their futures.

It has been proven time and again that if developing countries such as ours aim to grow their economies, that encouraging entrepreneurs is the best way forward. While it is not wrong to have the CPA therefore, it would be beneficial for entrepreneurs and small business owners – and the country – if it could be moderated to give their businesses the best possible chance of survival.

Liz Zambonini is the CEO of The Hope Factory, an established Enterprise Development Initiative of the South African Institute of Chartered Accountants (SAICA). For more information, visit www.thehopefactory.co.za

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1 Comment

1 Comment

  1. Fudley Bez

    Nov 17, 2011 at 12:02

    Do we need any more proof that those in power have lost the plot? There seems to be no end to all this madness till they kill the proverbial goose that lays the golden egg. We’ve had them protecting tenants to the extent of killing off landlords, protecting the workers at the expense of the employers, protecting criminals while denying the rights of the victims, protecting the secrecy of government while flouting the right to privacy of SA citizens. On-and-on. Maybe our law schools are to blame for producing over-zealous graduates who lack the wisdom to think through the consequences of the legislation they conceive.

    What the govt fails to realize is that they steadily are making criminals of all of us. You cannot remain law-abiding unless you have just laws to begin with. And just laws cannot be moderated into palatability. Why do we need them invoked into existence in the first place? Who will be the moderator?

    So the very CPA brought into existence to protect the consumer, will ultimately end up causing more harm to the consumer. Now don’t tell me they didn’t think of that?

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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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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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