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Counterfeit Goods Rampant

Hefty fines for US and Candadian counterfeiters – but it’s a slap on the wrist for SA fraudsters.

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The importation or manufacture and sale of counterfeit goods is one of the single biggest risks facing legitimate businesses on the African continent at present. Cheap, low quality goods, which more often than not do not meet local safety or health requirements, are flooding African markets, including South Africa. Such goods range from pharmaceutical products, to shoes and clothing to electronic goods and foodstuffs, to name but a few.

Annually, counterfeit goods worth an estimated $600 billion (6% of world trade) are traded around the world and, unfortunately, Africa has become a popular dumping ground for such goods.

According to the executive director of the Kenyan Anti-Counterfeit Agency, Gregory Munyao, Kenya loses revenue and taxes to the value of KES19 billion ($211 million) annually. It is also estimated that the private sector in Kenya is losing approximately KES50 billion ($556 million) annually.

Counterfeiting in Africa

Steven Yeates, Trade Mark partner at internationally recognised IP law firm Adams & Adams who battles with the issue of counterfeiting on an ongoing basis, is all too familiar with the problem – particularly in Africa.

“Despite the risks to local economies, civil court orders and criminal convictions in Africa pale in comparison to those being granted against counterfeiters in Europe and North America. In South Africa, the Counterfeit Goods Act prescribes a maximum sentence of R5 000 per item, and/or three years imprisonment in the case of a first offence, or R10 000 and/or five years imprisonment in the case of a second conviction.

“While these penalties are steep,” says Yeates, “the maximum sentences are hardly ever applied. However, in the USA and Canada two recent decisions have highlighted just how serious dealing in counterfeit goods is considered to be in those jurisdictions.

“In New York, the Federal Court ordered online counterfeiters to pay damages to Tory Burch, a luxury fashion brand, in the amount of $164 million. This is believed to be the largest damages award in the fashion industry ever. The counterfeiters had created 232 professional looking websites through which to sell counterfeit goods bearing the trade marks of Tory Burch.

“More recently, in June this year, the Federal Court in Canada issued the highest damages and costs award to date in Canada against counterfeiters dealing in Louis Vuitton and Burberry goods. Damages in the amount of $2.48 million, excluding legal fees, were awarded. Previously the highest order for damages was in the amount of $980 000, also in favour of Louis Vuitton,” comments Yeates.

Several recent successful seizures of large quantities of counterfeit goods have again put the spotlight on the efforts of our enforcement agencies to stem the flow of these products onto South African markets. In January this year, the Hawks seized five containers full of counterfeit goods at Durban harbour.

The goods, which included sunglasses, watches, shoes and clothing, were estimated to be valued at R120 million. In operations conducted in the first week of July this year, officials seized hundreds of thousands of counterfeit goods at buildings in the Johannesburg CBD. These included razor blades, children’s toys, clothing, shoes and personal hygiene products. Similar operations have taken place in November and now in December.

Difficult to convict fraudsters

Yeates explains the difficulties of convicting trademark fraudsters: “One potential drawback to the South African legal framework, particularly insofar as it relates to trade mark infringement and counterfeit goods, is that it does not provide a cost-effective and practical basis on which to claim damages against counterfeiters.”

According to Yeates, to be awarded damages in South Africa the Plaintiff has to prove its loss, which is often impossible in the counterfeiting scenario. Counterfeiters hardly ever keep accurate financial records and more often than not operate under false names and aliases.

It is for this very reason that African countries, including South Africa, are such easy targets for counterfeiters. “While the South African Criminal Procedure Act does make provision for compensation to be awarded to parties who have suffered damage to, or loss of, property resulting from offences, such compensation can only be applied for once a conviction is obtained. Even then, the trade mark proprietor has to prove the value of his loss – a virtually impossible task in the circumstances,” says Yeates.

Protecting your rights

The obvious question is thus what companies can do in South Africa to best protect their rights (as much as possible within the current legal framework). First and foremost Yeates says it is imperative that companies register their trade marks. Once a company’s trade marks are registered, the next step is to arrange for recordal of its trade marks with Customs.

Customs keeps a central database of all qualifying trade marks (i.e. registered or well known trade marks), and copyright which can be accessed by its officials on the ground. Customs officials use this database to determine whether certain trade marks are protected and, if so, who to contact in order to have samples of suspected counterfeit goods examined and checked.

“Once goods are seized by customs the proprietor of the relevant trade mark will have the option of taking either criminal or civil action, or both, against the importer, manufacturer or seller of the goods. While such action will not lead to massive damages being awarded to the trade mark proprietor, the actions will, if successful, lead to the destruction of the goods and, hopefully, the imprisonment of the counterfeiter.

“While massive damages claims against the manufacturers, importers and sellers of counterfeit goods are not yet on the horizon, local companies should protect their trade marks (and their businesses), by making use of the tools at their disposal. Failure to do so will result in our markets being overrun with counterfeit products, a scenario no developing country can afford,” concludes Yeates.

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The Workspace And MiWay Announce Entrepreneur Competition

To celebrate their collaboration at Village Road, The Workspace and MiWay are launching a competition for South Africa’s entrepreneurs that will see the winner/s given a major advantage to further grow their business.

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Space solutions and coworking specialist, The Workspace, and insurance company, MiWay, recently joined forces at The Workspace’s premises in Village Road, Selby where they have launched an entrepreneurial hub and business development programme in the Johannesburg CBD.

The competition is open to entrepreneurs based in South Africa who have valid identification documents, who run a business with four or less employees and are making an impact in their industry.

“We have always believed in assisting entrepreneurs and small business owners who are members of The Workspace community in whatever way we can. This entrepreneur competition takes it to the next level, giving a voice to our belief in entrepreneurship and its ability to create jobs,” says Mari Schourie, CEO of The Workspace.

Related: 6 Resources For Start-ups Looking For Funding

Morné Stoltz, head of Business Insurance at MiWay, says both companies are committed to upliftment initiatives and economic development. “The entrepreneur competition is a call to action to those vibrant entrepreneurs out there. Start-ups always need a bit of a hand-up and the winner of this one will have a serious advantage once the competition has gone through its paces,” he said.

Schourie and Stoltz agree they’re looking for an entrepreneur who has reinvented the way business is done in his/her industry. “Someone who has been innovative in the product or service being offered to the market,” says Schourie.

“We are looking for an entrepreneur who has or is busy creating a special environment where employees can flourish, and in the process, potentially creating more jobs,” Stoltz adds. “An entrepreneur who makes an impression on the judges due to aspects such as the business’ social impact, attitude, positive entrepreneurial outlook and a good business mind”.

Related: 4 Tips To Secure Funding For Your Start-up

The prize on offer – worth over R230 000 – will help set-up the winning entrepreneur for a period of 12 months, giving them a boost to help build their business.

All information on the Entrepreneur Competition is available on The Workspace website, including criteria, terms and conditions, and of course, the prizes.

For queries, please email events@theworkspace.co.za

Download the competition criteria here.

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Budget 2018/9: 3 Key Tax Areas To Look Out For In The Speech

High political drama in the opening weeks of Parliament aside, most South African business and personal taxpayers are expecting tax hikes across the board from the Finance Minister’s Budget Speech on 21 February.

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As we approach #Budget2018 day, Rob Cooper (tax expert and Director of Legislation at Sage, and chairman of the Payroll Authors Group of South Africa)has a few thoughts about what the Minister could clarify in his statement.

Government already faces a yawning budget deficit, aggravated by the need to find billions of rand to fund a new and unbudgeted-for commitment to free tertiary education.

While some spending cuts could help to release funds, we can expect a one to two percentage point increase in VAT, steep hikes to fuel levies and sin taxes, higher capital gains taxes, and perhaps even personal income tax hikes for high income earners.  We’re also likely to get more info on new taxes such as the carbon tax.

Personal taxpayers, with the exception of low-income earners, should probably not expect the Finance Minister to adjust personal income tax brackets and rebates to fully cater for the effect of inflation. In other words, even if your salary is worth less as a result of inflation, you should probably not be hoping for your effective tax rate to come down to compensate.

Here are three other things I’m looking out for in this year’s budget, each of which will have a major effect for employees and employers alike:

1. National Health Insurance

One of the big will-he-or-won’t-he questions the Finance Minister faces this year is whether to do away with the modest tax credit taxpayers receive for their medical aid payments. Government is eyeing an estimated R25 billion in funds from scrapping these tax credits, to be used to fund the incoming National Health Insurance scheme.

Many of us expected Minister Malusi Gigaba to announce this move in his Mid-Term Budget Speech in October 2017, but he held back. The move is likely to be contentious since a National Treasury analysis shows that 56% of the total credits claimed in 2014-2015 accrued to around 1.9 million taxpayers with a taxable income below R300,000.

In other words, the medical aid credit makes decent healthcare affordable to millions of people who might not otherwise be able to afford it. Taking it away could have dire consequences for the health of millions of lower income South Africans and put even more strain on an already pressurised public healthcare system.

Related: Budget Speech: The Impact on SMEs

2. Travel reimbursements and allowances

Travel reimbursements have long been a pain point for many employers and employees. Up to 28 February 2018, a portion of an employee’s travel costs was treated as remuneration when:

  • The per-kilometre rate used to calculate the travel reimbursement was greater than the SARS-prescribed rate per kilometre.
  • An employee is reimbursed for more than 12,000 business kilometres are reimbursed during the tax year.
  • The reimbursement value was greater than the prescribed maximum number of business km (12 000 km for 2018) multiplied by the prescribed rate per kilometre (R3,55 for 2018).

The result was that skills development levies and UIF contributions were added to something that should be considered as an operational cost rather than a payroll cost. This in turn increased the employer’s cost of employment. These levies and contributions were not assessed at the end of the tax year, so employers could not claim a refund.

We have long argued this regulation should be changed to be fairer to employers and employees alike. As a first step in the right direction, SARS has announced a simplification of the travel allowance and the travel reimbursement provisions, with effect from 1 March 2018.

Under this change, only the portion of the value of the travel expenses reimbursed at a rate above the ‘prescribed’ rate per kilometre will be treated as remuneration.  However, in future, we would like to see SARS handle travel reimbursements in the same way as it treats subsistence allowances for employees when they travel.

The excess portion of the subsistence allowance will be taxed on assessment, but it is not remuneration for the purposes of Pay-As-You-Earn (PAYE), skills development levies and UIF.

3. Employment Tax Incentive

I’m a fan of the Employment Tax Incentive (ETI) as an innovation geared towards addressing South Africa’s youth unemployment crisis, and the decision to extend the programme until the end of the 2019 tax year is welcome. However, administration of the scheme has always been complex for SARS and employers alike, a factor that has made some companies hesitate to take advantage of it.

Though SARS and the National Treasury have tweaked the ETI over the years, I would welcome further simplification of the definitions and calculations. That said, I don’t expect much news about the ETI this year, apart from alignment with the National Minimum Wage expected to be introduced from 1 May 2018.

Follow us on @SageGroupZA on 21 Feb for LIVE expert insights from the annual Budget Speech.

For more information about Sage’s annual tax seminars, please visit: http://go.sage.com/NPS_18Q1_C4L_ZA_EVCU_HR0310_20thAnnualPayrollTaxSeminarLP

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Pregnancy: What Are Employee’s Rights?

From the 12-16 is Pregnancy Awareness Week and a labour law expert talks about rights around pregnancy for employees and employers.

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Anticipating the birth of a baby is an exciting time for soon-to-be parents, but it can be stressful for couples as they negotiate companies’ leave policies and a possible reduction of income.

Jennifer Da Mata, Managing Director of Strata-G Labour Solutions, says employees need to familiarise themselves with their employers’ policies to ensure they understand what their rights are. “According to South Africa’s Basic Conditions of Employment Act (BCEA), female employees have the right to four consecutive months’ unpaid maternity leave.

“An employee may commence maternity leave any time from four weeks prior to the expected date of birth, or on a date determined by a medical practitioner or midwife as necessary for the protection of the employee or unborn baby’s health.

“The balance of leave needs to be taken after the baby is born, bearing in mind that no employee may work for six weeks after the birth of the baby, unless a medical practitioner or midwife certifies the employee is fit to resume her duties,” adds Da Mata.

There is no provision in South Africa’s legislation that stipulates when employees need to inform employers that they are pregnant. Employees must, however, notify their employers in writing on when they intend to commence maternity leave and when they expect to return to work.

Da Mata notes that some companies offer paid maternity leave, but this is at their own discretion. “Companies may offer employees full pay or a portion of their salary, as they see fit, but they are not legally obliged to do so. Employees who are not remunerated while on maternity leave are entitled to claim maternity benefits through the Department of Labour.”

Related: Maternity Leave – The Rights of Your Employees

And what about paternity leave?

According to Da Mata, employees are not entitled to paternity leave in terms of the BCEA, although one of the major amendments proposed to this Act includes making provision for paternity leave. “It is proposed that 10 consecutive days’ paternity leave be granted to a father following the birth of a child.

“Some companies have already adopted paternity leave as part of their human resource policies. We urge companies that haven’t done so yet, to keep the proposed amendments in mind when reviewing their internal company policies,” he says.

Currently, fathers are entitled to three days paid family responsibility leave during each annual leave cycle for the birth of a child. However, it is likely that this leave entitlement will be replaced by the proposed paternity leave amendments. “While the 10 days leave is great news for fathers, it will take a huge chunk out of their salary if paternity leave is ultimately promulgated as unpaid leave,” says Da Mata.

As a matter of precaution employees need to ensure that their employers have registered them for Unemployment Insurance benefits.  This will allow them to receive some benefit while on maternity or paternity leave. “Sections 34 and 37 of the Unemployment Insurance Act, 1966 (Act 30 of 1966), provide for the payment of maternity leave and legislative amendments will be proposed to Cabinet to improve these benefits,” explains Da Mata.

It is important for employers to note that in terms of section 187 (1) (e) of the Labour Relations Act, 1995, the dismissal of an employee on account of her pregnancy, intended pregnancy, or any reason related to her pregnancy, is automatically unfair. The definition of dismissal in section 186 of the Labour Relations Act, 1995, includes the refusal to allow an employee to resume work after she has taken maternity leave in terms of any law, collective agreement or her contract.

Related: Unlegislated ‘Other’ Leave Not A Right Says CRS Technologies

Da Mata says employers cannot unfairly discriminate against employees based on their pregnancy status. “If someone is dismissed for being pregnant, the dismissal may be held to be automatically unfair and the employee will be able to claim reinstatement or up to 24 months’ compensation in the labour court.

“Our advice to clients is to adhere to South Africa’s Labour legislation, be clear on their policies about maternity and paternity leave and consider the benefits of being on the right side of the law. This will ultimately cultivate a happy and productive workforce,” concludes Da Mata.

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