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The Evolution Of Savings In South Africa

Saving has always been difficult for South Africans; we have one of the lowest savings rates in the world. Nolene Parboo, Senior Manager: Savings & Investments at Standard Bank, reviews our savings history and suggests that remedying the present situation could rely on looking to our past.

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It is no secret that South Africans are not great savers – it is also no secret that our spend-thrift ways have been a matter of debate for years. Solutions have been posed and economic models have been suggested to change the national outlook, all to no avail.

Six years ago, Dr Monde Mnyande, then advisor to the Governor and Chief Economist at the Reserve Bank, pointed out that the evolution of South African savings – instead of displaying a positive curve – was doing just the opposite when savings were expressed as a percentage of GDP.

Related: How Tax-Free Savings Could Fund Your Child’s Education

He showed that between 1960 and 1999, gross savings in the South African economy averaged around 22%. However, the aggregate saving rate between 1985 to 1999 fell to around 18% from about 23% in the period from 1960 to 1972, and 25% in the period from 1973 to 1978. During the 1990s, the national savings performance deteriorated to about 16%. Dr Mnyande said the steady decline in savings during the 1980s and 1990s resulted from slow economic growth, rising tax and interest rate burdens. South Africans, rather than continuing to save, concentrated on maintaining their lifestyles.

During apartheid, this encouraged South African migrant workers to form stokvels, collaborative ‘safety nets’ to survive financially outside of their social settings back home, with some schemes attracting up to 50 members. But in the late 1980s, the apartheid government began to recognise the power of these collective savings schemes within black communities and tried to ban them. This became a huge barrier, because the savings were used to assist stokvel members to pay for necessities, such as burials and groceries.

In support of these collaborative savings groups, the National Stokvel Association of South Africa (NASASA) was formed in a bid to secure legal representation and protect stokvels. As a result, NASASA is today a self-regulatory body, approved by the registrar of Banks under the Banks Act of 1990.

This year, the South African Savings Institute (SASI) celebrates its 15th anniversary and looks back on the evolution of the nation’s savings during this period. Tracing back the country’s history, we can see that the household saving rate increased to -0.80% in the first quarter of 2016 from -2.40% in the fourth quarter of 2015. Personal savings in South Africa averaged 4.98% from 1960 until 2016, reaching an all-time high of 23.80% in the second quarter of 1972 and a record low of -2.70% in the fourth quarter of 2013.

Standard Bank research indicates that only 5.5% South African households potentially have the ability to save, as they have positive net-income balances. The higher-end households can potentially save 19% of their after-tax income, while affluent households have a savings potential of 65%.

The bottom line, however, is that arresting deterioration in our savings rate requires an ‘about turn’ in our behaviour. A culture of savings means examining priorities and deciding which personal expenses are acceptable and which should be avoided. Essentially, as has been pointed out by more than one expert, people can spend and then decide what portion can be saved, or they can save first and then decide what portion of what remains can be spent.

Perhaps, as a nation, we can reverse our ‘devolution’ of savings by re-examining our most successful saving mechanism and adopting some of the behaviours that make it so: Stokvels epitomise ‘the peak’ in inculcating savings habits by changing consumer behaviour.

In stokvels, the emphasis every month is on getting your contribution in by the due date. The penalties are subtle; other members are from the community and know you well. As regular meetings are held to discuss savings and the objectives of the society, the fact that you have not contributed is known by friends and neighbours. Worst of all, by not meeting obligations, you are placing the group in danger of not meeting their objectives. It is peer pressure at its best.

Related: A Savings Culture is Not Enough

Add to the mix the fact that stokvels have defined objectives for saving and you have the perfect recipe for a new attitude to savings that most South Africans could embrace. The irony, of course, is that stokvels are generally schemes that have been the preserve of lower-income groups, yet they have succeeded in mobilising billions of rands in national savings. Recent reports put their value in South Africa at and estimated R49 billion annually.

We have now reached the point where the power of stokvels combined with the need to attract more people into mainstream banking has seen them become organised: To have bank accounts, stokvels must have constitutions and office bearers. Like any business, no payments can be made without authorisation by nominated signatories.

As banks, we are already seeing savvy young professionals take on the lessons provided by their elders. There is an increase in the number of savings schemes that rely on the stokvel principles of pooling and distributing funds. However, their ambitions are loftier and the contributions significantly higher. Middleclass South Africans are saving together to invest in equities and unit trusts, or to use joint resources to acquire lifestyle purchases. The trick is finding ways to expand these changes in habits so that saving by groups becomes attractive to the majority of South Africans.

Apart from stokvels, South Africans should consider various savings and investment accounts that can help them plan for their future better – be it for retirement, that special holiday, or to cover unplanned expenses. The question each consumer should pose is, which savings account is right for me? Standard Bank’s PureSave account is, for example, an easy way to start saving and gain instant access to your money when you need it. With the MarketLink account, you gain the flexibility of being able to access your cash, in addition to competitive interest rates. Should you have a lump sum of money, consider the Tax-Free Call Account, where you can invest up to R30 000 a year and a maximum of R500 000 in your lifetime – and get tax free returns on your contributions.

Maybe the key to our national savings evolution rests on going back to our roots, and saving as a collective toward a common goal..

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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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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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