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Sars said its latest data highlighted the impact of weak economic growth.

JOHANNESBURG – The South African Revenue Service (Sars) on Monday said nearly half of companies in the country had no taxable income in 2017 while a quarter recorded a taxable loss.

Sars said its latest data highlighted the impact of weak economic growth.

The country’s growth has been forecast at 0.5% this year, which is a significant drop in what was previously predicted.

Sars said based on its 2017 data, 48.3% of companies had taxable income equal to zero and 27.4% reported an assessed loss. On the other hand, 24.3% had a positive taxable income.

Companies had up to 12 months from the end of their financial cycles to submit tax returns.

Sars said the decline could be largely be attributed to sluggish economic growth, structural challenges in some sectors of the economy, low confidence levels, and political uncertainty.

The tax collector said companies submitting returns fell to 36.9% – or just over two million for the 2018/19 fiscal year – partly due to many being considered “inactive or dormant”.

About 63% – or 572,000 companies – expected to submit returns complied.

• Compound interest is the process of adding interest to a principal amount and basing future interest on this new balance.
• Unlike compound interest, simple interest uses only the principal amount to calculate interest.
• While many installment loans charge simple interest, credit cards use compound interest.

Compound interest can be one of the most beneficial or damaging things to your wallet. And it all depends on whether you’re earning it or paying it.

When you’re earning compound interest, you could end up with a far larger balance than you initially invested. But when you’re being charged compound interest, you could end up paying far more than you ever borrowed.

But what is compound interest anyway? How does it work and how does it differ from simple interest? Let’s take a look.

What is compound interest?

Compound interest is the process of adding interest to a principal amount and basing future interest on this new balance. Here’s how it works.

Imagine that you invest R100,000 in the stock market and in year one, you earn a 10% return. That would be R10,000 in growth, increasing your overall portfolio value to R110,000.

Then, in year two, you earn another 10%. But, remember, now you’re earning 10% of R110,000 instead of R100,000. So you’d actually earn R11,000 in interest in year two, bringing your account value to R121,000.

That may not seem like a big difference. But compound interest continues to gain steam over time. Each year, you’d earn slightly more interest on a slightly larger balance. In fact, at a 10% annual return, compound interest would help your account grow to over R1 million in just 25 years.

And that’s without making any additional contributions during the entire 25-year span.

How compound interest compares to simple interest

Now, let’s take the same example from above and imagine that you were paid with simple interest instead.

If you earned 10% simple interest, you’d earn R10,000 each year over the course of 25 years – you’d only ever earn interest on your principal investment.

So over 25 years, you’d earn R225,000 in simple interest. After adding that to your initial R100,000 balance, you’d find your final balance to be R350,000.

That’s over R650,000 less than what you’d have if your interest had compounded all along the way.

Thankfully, most investments use compound interest. On the other hand, simple interest is most commonly used on installment loans, like mortgages and car loans.

That’s generally good news. But there are situations where you could be charged compound interest on debt, which we’ll discuss later.

How often is interest compounded?

The amount that you earn (or pay) with compound interest is influenced greatly by the compounding frequency.

When you’re comparing CDs or high-yield savings accounts, for example, you could see a variety of compounding schedules, such as daily, monthly, or semi-annually

The more frequent the schedule, the more compound interest you’ll earn over time. So an investment product with a slightly lower interest rate could still be more valuable to you over time if the compounding schedule is more frequent.

To help you determine the true value of compound interest over time, you’ll need a way to calculate it. We’ll discuss how to do that next.

How to calculate compound interest

Not a fan of math? That’s OK.

You don’t have to calculate compound interest with pen and paper. There are plenty of tools available that can help you calculate compound interest in a matter of seconds.

For instance, Investor.gov has a compound interest calculator that’s simple and easy to use. Simply input your principal balance, estimated interest rate, and length of time, and the compound interest calculator can show you immediate results.

Do you plan to continue making regular contributions over time? The compound interest calculator can take that into account as well.

The compound interest formula

If you’re ambitious and would like to make the calculations yourself, here is the compound interest formula:

FV = PV x (1 +i)n

In this formula, FV means Future Value, PV means Present Value, i means interest rate, and n means number of compounding periods.

So let’s say you wanted to calculate your compound interest earnings on a R10,000 investment earning 5% interest compounded annually over five years. Here’s how that would be expressed in the above formula.

• FV = R10,000 x (1 +0.05)5
• FV = R10,000 x 1.055
• FV = R10,000 x 1.2762
• FV = R12,762.00

Another quick way to calculate your compound interest return is by using the Rule of 72. This rule shows you how quickly you can expect your investment to double over time.

It’s easy to use the Rule of 72. Just divide the number 72 by your expected interest rate. So if 6% was your expected rate of return, you could reasonably expect your investment to double every 12 years (72 divided by 6 = 12).

How to avoid paying compound interest

Earning compound interest is great. But paying compound interest is anything but. In fact, it can have disastrous effects on your finances.

As mentioned earlier, most large loans, like auto loans and mortgages, use simple interest formulas. However, there is one kind of debt that does use compound interest: credit cards.

Most credit card issuers compound interest on a daily basis. That interest will begin to accrue the day you make a purchase with your credit card.

However, the good news is that most credit card issuers will give you a grace period up until your due date. In other words, if you pay your statement balance in full by the due date, they will waive the interest charges. But interest will be assessed to any portion of the balance that is left unpaid.

So if you don’t want to pay compound interest, you’ll want to avoid carrying a credit card balance beyond your due date whenever possible.

It’s been one of Eskom’s busiest months yet with the resignation of Eskom chair Jabu Mabuza, a fire at a transformer which plunged OR Tambo International Airport into darkness, and the implementation of Stage 2 load shedding on Saturday – while it fights a rear-guard action against rumours that Stage 8 might be on the cards.

Further load shedding uncertainty looms as the state utility continues to grapple with yet more unexpected outages on Monday and Tuesday. Eskom released statements saying it was managing to keep the grid stable – but only just – with some 13,800 megawatts (MW) offline on Monday and 11,723MW lost on Tuesday.

While Eskom said it will continue to try to keep the lights on, things will become far more strained as more South Africans return to work and business returns to normal this week, with the additional electricity requirements it brings.

The state utility says it has about 42,700MW of power generating capacity. But that is stretched thin due to an ageing fleet of coal stations, which make up the majority of the country’s electrical generation.

This is what Eskom’s energy mix looks like – and why a single big breakdown at Medupi can plunge the entire country into crisis.

Eskom has some 55,500 megawatts (MW) of total maximum generating capacity – in theory.

Drawing on data published by the department of public enterprise, the office responsible for buying electricity from independent power producers (IPPs), and Eskom statements, the state utility has some 55,500MW of nominal (overall total) capacity. While this number does not necessarily translate into actual power available on the grid at any one time, it provides an idea of would happen if every power station was online at once, all running at 100% efficiency.

That total comes mostly from 15 coal-fired and one nuclear power plants. The remainder is from peaking stations (power that can be quickly put onto the grid during peak demand) comprising of 4 gas-to-liquid fuel turbine stations, 3 pumped-storage schemes, and 2 hydroelectric stations. There is also 1 wind farm, plus independent power producers as well as imported electricity.

Here is the capacity for each of those plants – and what Eskom says each plant is actually producing.

Here is just the coal stations plus the Koeberg nuclear power station.

And the remaining sources break down like this.

Eskom also draws 1,500MW worth of imported electricity.

According to Eskom’s weekly system status update, it had an installed capacity of 47,000MW at the start of 2020.

The capacity number shifts weekly depending on which units are online and offline, with planned maintenance necessary at every turbine eventually. The current numbers include “bonus power” generated from units at Kusile, the massive sister station to Medupi, that have been synchronised to the grid but are not formally in commercial operation yet.

The electricity budget breaks down like this:

• Eskom budgets an average 5,500MW a week on scheduled maintenance;
• plus 2,200MW for an operating reserve;
• and 9,500MW reserved for unplanned outages.

That leaves just over 30,000MW for actual daily use – if things work as they should.

In the next three months planned outages will be around 7,000MW as the utility prepares for winter, and its big electricity demands.

This is why electricity is rationed via load shedding.

When unplanned outages exceed the 9,500MW budget and demand on the grid peaks, the shortfall is made up by switching off power to some users instead of letting the grid collapse, disastrously, as users try to pull more power out of it than there is to be had.

The state utility has not managed to keep unplanned breakdowns at below that 9,500MW level – the level at which it is forced to consider load shedding during peak hours – since December 4, 2019. The number, which as of Tuesday was 11,723MW, hasn’t translated into load shedding because demand was low during the Christmas holiday season.

As South Africans begin work in earnest the margin between peak demand and unscheduled breakdowns will become more critical. Especially since Eskom’s energy availability factor has seen the worst year in 2019 in four years, according to data collected by energy expert Chris Yelland, of EE Publishing.

Here is why Medupi alone can cripple South Africa.

Coal is a massive part of Eskom’s energy mix, and a handful of power stations – such as Medupi – are critical within that coal generating side.

Read: 10 things you should know about Medupi, SA’s troubled mega power station

Eskom’s coal-fired station fleet is mostly old, and has seen little in the way of proper maintenance over the last 12 years, because supply was too tight to shut any down for long periods of time.

The brand new Medupi should not require such shut-downs, so should provide a pretty reliable 4,000MW chunk (since its unit 2 came online in November) of the 41,798MW in coal power generated.

But it isn’t reliable, and every time Medupi shuts down, whether due to a broken conveyor belt or wet coal, it immediately throws the country into a state where where load shedding becomes much, much more likely.

There is some good news: more power is coming onto the grid. 

Eskom told Business Insider that Medupi Unit 1 is currently synchronised and providing 400MW worth of bonus power to the grid, which isn’t included in the overall numbers because it is yet to be commercialised. Likewise, Kusile’s Unit 2 and Unit 3 are also synchronised to the grid and providing “bonus electricity” when operated.

If Eskom can stick to its schedule, this is how power will come online from the two new giant power stations:

Medupi Unit 1 commercialisation in May 2020 – 720MW.

Kusile Unit 2 commercialisation August 2020 – 800MW.

Kusile Unit 4 in March 2021 – 800MW.

Kusile Unit 5 in November 2021 – 800MW.

Kusile Unit 6 in September 2022 – 800MW.

*Source Eskom Update given by Pravin Gordhan, Minister of Public Enterprises, April 2019. 

The there is almost 2,600MW of independent-producer power, renewable energy, which will be connected to the grid as part of the IPP bid window 4, the last bid to be signed off by Eskom.

Read more: These are the biggest green energy projects in SA – all wind farms

But all of that is not enough to get SA out of trouble entirely.

Other than Medupi and Kusile plus the new independent producers, there is not much in the way of new power coming to the grid any time soon. Government has laid out plans for more electricity generation in its Integrated Resource Plan (IRP 2019), but those projects are not even out on tender yet, and will take years to complete.

Medupi’s Unit 3 is also due to be offline for a design modification, which will knock off some 800MW of power currently available. The maintenance was delayed in January due to the system being constrained, reported SowetanLive.

Government needs electricity fast. Industry and experts are calling for:

• Purchasing some 500MW of excess energy produced by IPPs on a short-term basis.
• Make it possible for private companies, and even municipalities, to purchase electricity directly from independent power producers.
• Deregulating electrical generation caps of 1MW which would allow private companies to generate their own off-the-grid power.
• Reducing the “red tape” surrounding the technical and laborious application process through which Eskom buys power from IPPs.
• Allowing small scale solar to sell excess energy back onto the grid.

Government has been slow to commit to the regulatory changes necessary – but the pressure is mounting.

*the overall maximum capacity of Eskom was amended to include imported electricity. 

By gross domestic product (GDP) per capita, Equatorial Guinea is the second richest country in Africa. According to the World Bank’s latest figures, the country ranks 55^th in the world on this measure. It is on a par with Russia, and richer than Mauritius.

On the United Nations Human Development Index, however, Equatorial Guinea ranks 141^st. This is below the island states of Vanuatu and Micronesia, both of which have a GDP per capita more than seven times smaller. Mauritius ranks 65^th.

While the small oil-rich west African country might be an extreme example, its situation does illustrate the shortcomings in using GDP as a country’s sole measure of progress. Girls in Equatorial Guinea only attend school for an average of four years, and life expectancy in the country is 58. This is lower than in Eswatini, which has the highest adult prevalence of HIV in the world.

This illustrates why focusing on GDP on its own is not particularly helpful when trying to understand a country’s state of wellbeing. It is also inadequate when considering how to improve it.

“I don’t think you want to ignore economic growth,” says Enrique Rueda-Sabater, senior advisor at the Boston Consulting Group (BCG) and a senior lecturer at Esade Business and Law School in Barcelona. “But it’s a question of thinking about the things that are not captured in the GDP measure, which are many.”

Focusing on the wrong thing

Over 10 years ago Nobel laureate Joseph Stiglitz was the central figure in a commission that identified “the limits of GDP as an indicator of economic performance and social progress”. The commission’s work was pretty universally accepted. Practically, however, it has changed little. Countries still see GDP as the most important, and sometimes the only, measure of their progress.

On one level, this is reasonable. GDP is a single, immediate and understandable figure. It can stand as a proxy for a lot of other things. The higher a country’s GDP per capita, the more likely it is to deliver high levels of wellbeing for its citizens.

That correlation is not, however, perfect.

“One of the shortcomings with GDP is that it uses averages,” explains Andrew Dittberner, chief investment officer at Old Mutual Private Client Securities. “So when you have a country like the USA where the top 1% own more than 50% of the wealth, when that 1% is doing well it looks like the whole country is doing well. In reality, however, a large part of the population is being left behind.

“So by just focusing on GDP you are potentially focusing on the wrong thing,” he adds.

This is a critically important consideration when thinking about government policy.

“We all agree that wellbeing is the goal,” says Rueda-Sabater. “But if you don’t measure it, you are not going to make any progress towards taking it more seriously. This is why BCG has developed a broad, relative measure of wellbeing.”

In a recent opinion piece, Stiglitz himself put it like this:

“What we measure affects what we do: if we measure the wrong thing, we will do the wrong thing. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment – we become distorted in the same way that these measures are distorted; we become more materialistic.”

What we are missing

As a single number, GDP lacks both nuance and context. There is a lot that it doesn’t show. The methodology for measuring it was built in the 1930s, when mass production was the dominant economic model. There is however a lot that it overlooks

Read: GDP is a flawed but magical indicator

“It was built to measure products and services with a transactional value attached to them – where money changed hands in a formal way,” Dittberner says. “So volunteering at your local charity is not counted as part of GDP, but surely that’s good for society? Other very simple examples of non-transactional items that would be overlooked include someone babysitting my kids or me cleaning my home. There is undoubtedly a societal benefit from that, but it does not count towards GDP.”

While GDP measures actual production, it also does not capture the potential for production. This includes factors such as the health of citizens, education outcomes, and whether a country has adequate infrastructure.

Conversely, GDP can be boosted by things that are detrimental to society. For instance, a major natural disaster like a flood or an earthquake would obviously be bad for an economy – it would destroy wealth and damage productivity.

It could, however, result in a short term boost to GDP. This is because the rebuilding activity would register as added production.

“The other thing it doesn’t take into account is the distribution,” points out Andrew Aitken, senior economist at the National Institute of Economic and Social Research in the UK. “Stiglitz argued that we need to look at the distribution because GDP per capita could be going up but inequality could be rising at the same time. If you look at median household income and compare that to GDP per capita, there is a big divergence.”

GDP has to come from somewhere

In the South African context, these questions are particularly important because, as Athol Williams, a social philosopher and a senior lecturer at the University of Cape Town’s Graduate School of Business, notes, GDP measures outputs, not inputs.

“GDP is a meaningful measure, but it shouldn’t be the only measure,” Williams says. “Our economic system is a function of our social system. The things we do and how we do them have an economic output.”

Put another way, economic growth is always the result of a lot of other things. So when the national obsession is that we have to grow the economy, it doesn’t actually help that much to only measure whether the economy is growing or not. We have to consider, and measure, those things that are necessary to deliver economic growth, such as adequate nutrition, access to healthcare and safety.

It’s not that South Africans don’t know that these things are important. The issue is that they are not properly and regularly measured or given the same level of prominence as the GDP figures. Yet, they are of far more immediate concern to the average citizen.

This might also force a rethink of policy assumptions. Is creating jobs a result of economic growth, for example, or does economic growth result from businesses operating in a supportive environment in which they are able to create more jobs?

Fix what needs fixing

It also demands that consideration is given to the root causes of issues impacting on the economy, and not simply trying to address them as symptoms.

“How do you address gang violence on the Cape Flats, for example?” asks Williams. “You don’t send in the army. You fix the society. Until we can provide economic alternatives for them, they will keep doing it. Sending in the army doesn’t take away the need to pay for school fees or their parents’ medical care.”

This may not sound like tangible economics, but it has to be to get a full picture of a country’s state of progress. Only measuring wealth or income assumes that everything can be explained in rand and cents terms. This is the fallacy that a one-dimensional focus on GDP has perpetuated.

What is actually imperative is understanding whether wealth and income translates effectively into improved wellbeing.

“There are countries with similar wealth and income that have fairly different levels of wellbeing,” says Rueda-Sabater. “So that proves that there is something else there. And that’s also a reason for optimism. It means that there are things you can do, regardless of your income level, to do better.”

Seeing a shift

This does not mean that we shouldn’t measure GDP, or disregard its significance.

“GDP does have its uses,” says Aitken. “For example, it is important for deciding monetary and fiscal policy. I don’t think we want to get rid of it entirely.”

However, it is important to recognise its inadequacies. Focusing too much on whether the economy is growing or not, does not answer questions about the kind of society that is needed to support growth, or the kind of society that such growth should foster.

Those are the really significant, and more complex, questions that policy makers should be concerned with.

“I think there are signs in a quite a few different countries of things starting to happen in this regard,” says Aitken. “The OECD [Organisation for Economic Co-operation and Development] is working on this area a lot and it does seem like gradually things are probably starting to change. But maybe that’s just wishful thinking.”

What it means for the airline now that it has been placed into business rescue.

South African President Cyril Ramaphosa has taken the decision to put South African Airways, the cash-strapped national flag carrier, into voluntary business rescue. Caroline Southey from the Conversation Africa asked Professor Marius Pretorius to explain how the process works.

What is a business rescue?

It’s what is known in the European Union as a pre-insolvency procedure – that means a process that’s designed to save a company from being shut down. All countries have their own version of the procedures that need to be applied when a business is in distress. One of the best known ones is the US’s Chapter 11.

South Africa’s process is set out in Chapter 6 of the Companies Act, which came into effect in 2011. It indicates what needs to be applied when a business is in distress.

What’s the aim?

The aim is to address distress in a business when it’s not performing. Distress is normally identified when a company is no longer profitable, when it’s not a going concern anymore; when it has major problems. Like a sick person. You have to see a doctor when you’re sick.

The aim is to institute a turnaround – to try to prevent the company from having to go into liquidation, or, in other words, shut down.

In South Africa, a company applies for business rescue under Chapter 6 of the Companies Act. It’s basically a last-ditch attempt to save a business. That’s why it’s called a pre-insolvency process.

It’s understandable that the government is trying to avoid liquidation: if SAA went the route of liquidation rather than rescue, the government would be forced to repay creditors. But in a rescue situation, a moratorium is put on relief payments. Creditors don’t have to be paid immediately. It gives a company a bit of a lifeline while the rescue practitioner works out a plan for the business.

SAA has accumulated unsustainable levels of debt.

When should business rescue be sought?

The act makes a provision for when a business is in financial distress. It’s then obliged to file for business rescue. This would arise, for example, if a company was unable to meet financial commitments due over the next six months. Under these circumstances, the company is obliged to file for voluntary business rescue. Research shows that company directors take the voluntary route 90% of the time. The reason for this is that if they don’t, they could face being delinquent directors, making them liable for the company’s debt.

How is a company placed in business rescue?

The directors file through a procedure under the Companies and Intellectual Properties Commission, which then confirms the appointment of a rescue practitioner and licences him or her. There is a full process of accreditation and set of requirements set by various professional bodies for practitioners. They are usually lawyers, accountants or business people. And there are conditions specifying how much experience they must have had, depending on whether they are senior or junior.

The process of appointing the rescue practitioner can take up to five days. Once appointed, the person takes full charge of the company. That means they have the power to make all decisions, including running the company’s finances.

Read: SAA rescue supremo faces long to-do list

The main aim is for the rescue practitioner to investigate the affairs of the company and ultimately prepare a rescue plan. They have 25 days in which to do this. But normally the rescue practitioner would call a creditors meeting to inform them that he or she is applying for an extension to that time. The creditors must agree to this.

The rescue practitioner must also meet with the employees.

When the rescue practitioner has drawn up a plan for the business, it needs to be presented to the creditors for approval. They must vote on it. It can only go through if 75% are in favour of implementation. Alternatively, they can ask for revisions which the rescue practitioner is obliged to follow up.

If there’s no agreement, the business must go into liquidation, and be shut down.

But if the plan is agreed, the next task is implementation. There’s no particular timeline for this – it can take anything from, say, six months to four years.

Once the plan has been implemented, the company must apply to the Companies and Intellectual Properties Commission to have its status reversed to being a going concern.

What happens to the directors during the process?

Most of the time it’s the directors that got the business into trouble in the first place by making bad decisions.

They are obliged to support the rescue practitioner in whatever he or she requires. Their co-operation is very important. For example, they must supply him or her with information. But they no longer have any powers to make decisions. They will still be paid – though, depending on the plan, this is where cuts are usually made immediately. But this will depend on the rescue practitioner and the plan.

And the employees?

Employees are unfortunately very vulnerable during the process. Quite often you’ll find that the good employees leave because they can find other jobs. Nevertheless, they are also protected. If the company does go into liquidation they get preference and are the first of the unsecured creditors to be paid from the available money.

The airline is a state-owned enterprise. Has one of these ever been put through this process before?

Not that I know of. I believe that this is why there was so much hesitancy to do it.

In late November the trade union Solidarity, which represents mainly white, Afrikaans-speaking employees, asked the Johannesburg High Court to place the airline under business rescue. The union argued that this was the only way to save the airline.

I think it’s doubtful that the airline can be saved. The question you have to ask is this: is there a business?

As soon as this process starts, the business takes a body blow. Nobody trusts it anymore. Nobody wants to take the risk and book tickets because there’s a high risk they will lose their money.

Marius Pretorius, associate professor in strategy, leadership and turnaround, University of Pretoria.

Finance Minister Tito Mboweni has said the SA Revenue Service needs “intrusive capacity” to investigate taxpayers concealing earnings and counter illicit financial flows in cigarettes, alcohol and fake goods.

Mboweni was responding to a Parliamentary question by the EFF’s Mbuyiseni Ndlozi. The EFF spokesperson asked the minister whether he agreed with remarks previously made by Treasury Deputy Director-General, Ismail Momoniat, in a committee meeting in September about the need for intrusive investigative capacity for the tax agency.

Mboweni, in a written response, said that he concurred with Momoniat’s view “on the general requirement for intrusive capacity for a well-functioning revenue-collection authority”.

“I am sure the Honourable Member will also agree that SARS must have significant intrusive powers, not only to deal with taxpayers concealing information on income received, but also to counter illegitimate trades (and financial flows) in commodities such as tobacco, liquor and counterfeit goods.”

The minister added that, since SARS is a “semi-autonomous revenue authority which determines its own internal organisation”, the tax agency’s commissioner should be able to provide information on the functions of its units.

The finance minister noted that the Nugent commission of inquiry into SARS, set up by President Cyril Ramaphosa to investigate the revenue service’s administration and governance, found in its final report that it could find no reason why the operation of a unit to gather intelligence on illicit trades “even covertly, within limits” was not legal.

“Indeed, SARS must not be a toothless tiger when dealing with tax evasion and illegitimate trades and financial flows,” said Mboweni.

The EFF and its deputy head Floyd Shivambu have in the past been criticised by Treasury and the finance oversight committee for alleging that Momoniat – who often appears at Parliamentary meetings to brief MPs – had a superiority complex which did not allow him to take orders from African seniors.

In June 2018 Treasury said that the red berets displayed a “gross misunderstanding of parliamentary processes. Furthermore, the EFF has abused parliamentary privilege to throw mud at Treasury staff.”

Ndlozi at the time backed Shivambu, alleging that Momoniat had “no regard for black, particularly African leadership”.

A new study by financial services company Retail Capital shows that small businesses in South Africa are buckling – knocked by a low-growth economy, unreliable utilities and rising operating costs.

The study, entitled: Roll With The Punches, found, among other things, that business is only good for 10% of our SMEs, while the other 90% are floundering thanks to the weak economy.

Collectively, SMEs keep 10.8 million people employed, accounting for 66% of all formal jobs, they contribute 20% to the GDP and pay 6% of corporate taxes.

“They are South Africa’s lifeline,” the group said.

Retail Capital conducted the study in October 2019 and surveyed over 700 entrepreneurs using ovatoyou’s online quantitative methodology.

More than half (55%) of respondents say that demand is shrinking and there is less business as people are buying less, while 58% say operating costs are a threat to their business.

• 47% are being subjected to unreliable resources and services, such as load-shedding, water-shedding and fuel levies;
• 33% are stymied and held back by red tape, governance and compliance regulations;
• 15% are affected by strikes and labour laws; and
• 59% ranked the banks as the least likely to support SMEs

“Small businesses are burning the midnight oil to keep the lights on and our people employed. They’re your local woodworker, craft beer distiller, the face of the shish n’yama, and poultry farmer.

“They get up every day and fight the good fight, to feed their families and bring home the bacon, all the while trying to contribute to our economy. But it’s not easy. Our entrepreneurs are operating in an extremely challenging environment,” said Retail Capital chief executive officer, Karl Westvig.

These hard knocks are taking a toll on our SMEs and they need support to stay afloat. But help is not always at hand, especially from the banks: 58% ranked banks among the least likely to support them, he said.

Technology and rapid digitisation is also affecting our SMEs, with a noteworthy 32% saying that it is a threat to their business. “Many small businesses don’t have the luxury of looking at digitisation, they are focused on sustaining their current businesses,” Westvig said.

“Given the majority of SMEs employ fewer than three people, keeping up with technology is the last thing on their minds. They often don’t have time to work on their business vision, or plan too far ahead as they are tied up in the operational daily grind. Unfortunately missing this trick could affect their sustainability and longevity,” says Anni Wilhelmi from the Women President’s Organisation.

To make ends meet SMEs often self-sacrifice, taking a salary cut before implementing short-time or retrenching (58%).

This as in a small business, “relationships with staff are often more intimate and they are aware that when they retrench an employee, they retrench an entire family,” said Arifa Parkar from the Western Cape Business Opportunities Forum.

Up to 13% also start a side hustle to diversify income streams, or identify a gap in the market where there is demand, often in niche industries. So while 17% of SMEs are in retail, specialist services (15%), construction (9%), hospitality (6%) and owned restaurants (5%), the majority are running small businesses such as own a biscuit brand, sell bags and perfumes, print labels, offer vehicle finance and childcare and even manufacture tutu sets.

More women are also starting their own businesses with 65% of the survey identifying as female, “11 years ago when I started the National Small Business Chamber, only a few members were women. Now they’re dominating the SME sector,” said the chamber’s CEO, Mike Anderson.

“The report’s data provides a sense of how brutally tough it is out there,” said Westvig.

“My advice to small businesses is to dig deep, there are no shortcuts. It’s going to be hard, but put in the time and ride it until you come through on the other side. What happens now doesn’t mean it will happen in six months’ time. I think we have gone to as low as we can go. Once SMEs see hope, they will see through the curve.”

As the Passenger Rail Agency of South Africa continues to chug its way out of its financial and governance troubles, Auditor General Kimi Makwetu gave the struggling state-owned entity a disclaimer of opinion in its 2018/19 annual report, saying management had not properly accounted for assets, fare revenue and other financial information.

A disclaimer is given when the auditee gives insufficient documented evidence in its financial statements or elsewhere for the Auditor General to give an audit opinion. The audit report reflects the standing for both Prasa as a group and its subsidiaries as operators.

Prasa’s annual report was tabled in Parliament this week after delays spanning longer than a year, while the new board came to grips with the financial impact of years of mismanagement.

“Because of the significance of the matters described in the basis for disclaimer of opinion section of this auditor’s report, I was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these consolidated and separate financial statements,” said Makwetu.

Makwetu added that it was not possible to get enough appropriate audit evidence that management had properly accounted for property, plant and equipment information, in line with the requirements of generally recognised accounting practice.

“This was due to the inadequate state of accounting records, including the lack of a credible fixed asset register and the non-submission of information in support of these assets.

Assets and fare revenue

“Some assets were not recorded in the asset register, while others were recorded but their existence could not be verified,” Makwetu said.

Makwetu noted material inconsistencies between the amounts disclosed in the financial statements for the adjustment to the capital subsidy and grants. He said during 2018, he could not get sufficient audit evidence for fare revenue or confirm the revenue by alternative means.

As a result, he could not determine whether any adjustment was necessary to fare revenue stated at R1.3bn and R1.8 bn for the controlling entity and economic entity respectively.

“My audit opinion on the financial statements for the period ended 31 March 2018 was modified accordingly.

“My opinion on the current year financial statements was also modified because of the possible effect of this matter on the comparability of the fare revenue for the current period,” Makwetu said.

Irregular spend

Makwetu said the group did not have adequate systems to identify or disclose all irregular expenditure. As a result, he could not determine the full extent of the adjustment needed to the balance of irregular expenditure stated at R26.2bn (R23.4bn in 2018).

Makwetu also could not determine the full extent of the adjustment needed to the balance of fruitless and wasteful expenditure stated at R333m (R1bn in 2018) for the controlling entity and at R383m (R1bn in 2018) for the economic entity.

Non-provisional taxpayers who use SARS eFiling have only until 4 December to submit their personal tax returns. Here are a few things you should avoid when completing your return:

Mistake 1: Not declaring travel expenses in order to claim a tax deduction

A travel allowance is paid to an employee if they travel for business purposes. This is usually paid on a monthly basis, irrespective of the kilometres travelled. Your employer is required to withhold PAYE (pay as you earn) either from 20% or 80% of the amount based on how often you need to travel. On assessment, the entire amount will be subject to tax, unless you have kept a logbook and complete the necessary details.

If your employer reimburses you for each kilometre travelled, it is not required to withhold PAYE unless the amount the employer pays you exceeds the prescribed rate per kilometre. In this instance, your employer should withhold PAYE only from the amount that exceeds the prescribed rate per kilometre (R3.61 for 2018/2019). You must provide sufficient information to SARS for the deduction to be allowed.

How to claim the tax deduction:

Select “Y” on the question “Do you want to claim a deduction against a travel allowance?”. Once this field is activated, you need to indicate the number of cars you used. You will then complete details such as the car model, car make, cost price or cash value, registration number, the kilometres travelled and whether a logbook was kept. If this section is not completed, the travel allowance and/or reimbursement (if it exceeded the prescribe rate) which you received for the year will be included in taxable income and be taxed.

Mistake 2: Not declaring medical dependants

If a part or all of your medical aid contribution is administered through the payroll, your employer must consider the monthly medical tax credits before your tax is calculated for the month.

For the 2018/2019 tax year the medical tax credits were

·         R310 for the main member,

·         R310 for the first dependant and

·         R209 for every additional dependant.

If the medical aid contribution is not administered through the payroll, you may provide your employer with proof that you are contributing towards a medical aid in your private capacity. Your employer can then grant the benefit of the monthly medical tax credit. You must indicate the number of medical dependants you paid for per month in the annual tax return.

Even if the employer applied the medical tax credits on the payroll on a monthly basis, SARS will disregard the medical tax credits if the dependants are not indicated on the return. You will then owe SARS money. You must also declare your total medical expenses to claim additional qualifying medical expenses.

How to claim the medical tax credit and additional qualifying medical expenses

Select “Y” on the following question after which you need to enter the number of dependants.

If you are not the principal member of the medical aid but you have paid medical contributions/expenses for family members who are dependent on you for family care and support, select “Y” on the following question after which you need to enter the number of dependants:

Mistake 3: Not claiming an exemption for remuneration earned abroad

Did you perform duties outside of South Africa on behalf of your employer for more than 183 days of the year, of which at least 60 days were continuous? If so, the remuneration you earned for the work in the foreign country is not subject to income tax in South Africa. Your employer might have applied the exemption in South Africa, or it may still have withheld PAYE from your remuneration.

Irrespective of whether you are entitled to the exemption or not, the salary earned in the foreign country must be reflected against IRP5 code 3651 and not 3652. This is specified in the SARS Business Requirement Specification for PAYE and the SARS Interpretation note 16. Other remuneration earned abroad must also be reflected against the correct IRP5 codes on the employee’s tax certificate.

The remuneration reflected on IRP5 code 3651 (and other relevant remuneration earned abroad) will not automatically be exempt from income tax. You must indicate that remuneration was earned for services rendered in a foreign country. If all requirements are met, the exemption will be granted.

How to claim the exemption

Select “Y” on the question ‘Did you receive any form of remuneration for foreign services rendered?’ and complete the relevant section in which case the exemption might be granted

Mistake 4: Not making use of a reputable tax practitione

You, as the taxpayer, are responsible for declaring the correct information to SARS and will face the consequences if you don’t. Ensure that your tax practitioner declares all income by providing all the correct information to him or her. You may have heard of friends getting a refund from SARS – don’t necessarily imagine that this is because they have a better tax practitioner than you.

Each person’s circumstances and income differs, so some people might receive refunds and others not. A reputable tax practitioner will complete everything accurately based on the information you provided in order to only reflect a refund if it is allowed by law.

Now that your 2019 return is done, get ready for 2020

The next big milestone for individual taxpayers is the start of the new tax year on 1 March, 2020. Consider putting more money into retirement funding to reduce your taxable income for the next year. Also remember to check your car’s odometer reading at the end of February to update your logbook.

JOHANNESBURG – Small, medium and micro-sized enterprises (SMMEs) are lauded as the backbone of any economy and collectively they are the largest employer and contributor to sustainable income for millions of households.

Yet in reality, they are the pariahs of big business and the outcasts that bear the brunt of a capitalist world that favours the established and moneyed.

The fact that about 50 percent of small businesses fail to survive beyond their second year of doing business says it all.

Many have attributed this reality to multiple tangible issues such as inexperience, lack of access to funding, lack of marketing budgets and know-how etc. Having been in business for over the critical two-year litmus-test period, none of these reasons is as significant as the elephant in the room.

The main reason SMMEs fail is that they are heavily regulated with very little or no support from big business or government, save for loads of talk and PR rhetoric. That SMMEs are expected to adhere to the same levels of reporting and compliance as big companies is a shame. The playing, therefore, is neither level nor in their favour.

The following examples should help put things into perspective:

Financial management and reporting

Like any other big company, SMMEs are expected to comply with the same laws in terms of filing their returns ie income tax, PAYE and VAT etc. And they absolutely should be expected to comply. However, this has been proven not to be their strength and it is a no brainer to understand why. SMMEs are not experts in this field and do not have the necessary budgets to outsource this function to professional accounting firms.

Understanding Legalese and effecting it

Closing deals requires SMMEs to have sound legal advice, support and understanding in order to protect their interests. 
Often SMMEs find themselves agreeing to contracts drawn out for them by the other contracting party with little input or influence on the contractual terms. For them to have an equal input on their contracts they need to pay for legal opinion and again this is a luxury they can’t afford. The desperation of having to take whatever job comes because that might just be the only one you get regardless of the terms and conditions of the contracts is their everyday reality.

This ranges from payment terms to exit clauses to the ownership of the intellectual property of the work done et al. I don’t know how many times I have had to turn down business from prospective clients who insist on signing a 90-day to 60-day payment terms. My argument has always been once the work is done, I must pay my employees for work done on a monthly basis, why should I subsidize multimillion if not multibillion-rand companies with my little resources. These are listed companies that do not need to withhold small change from SMMEs, yet it happens day in and day out and under the watch of those in positions of influence. What a shame!

Human Resource Management

A business succeeds by hiring the right people to the right positions and talent comes at a cost. The cost of hiring and firing and the tedious associated with onboarding and offboarding employees is an onerous one for SMMEs. They are at a disadvantage because they can’t afford top talent salaries that are given by big corporates nor are they in a position to offer competitive benefits it any at all. They must work with what is within their budget and limitations.

Pro-Bono work

Most established companies plead poverty and entice SMMEs to do pro-bono work with the promise of possible business in future. They waste the little resources they have with the hope that this will unlock opportunities for them in future and instead it costs them the little money they have with no guarantee of future business.

I was once approached by a big global infrastructure company and after the meeting the CEO and getting the brief, we duly sent the cost estimate. I was never ready for his response which was: “I thought you could do this first project for free, so I can motivate with my superiors at HQ to use you in future.” The nerve!

My response to him was “do you normally construct big commercial buildings for free in order to get follow on order?”. His answer was a quick “no” and my response was I would not either and that was our parting shot.

Belief in B-BBEE rating

The reality about B=BBEE is that it means a lot to those who harp on it the show and publicity. It means zilch! I have never gotten business because I am a level one 100 percent woman-owned business. I have, however, gotten business because of my ability to deliver and my track record. Corporate South Africa says one thing and does the opposite when it comes to procuring from B-BBEE suppliers. They get the suppliers that will deliver on their needs and tick the boxes for the scorecards for reporting purposes only. I am ok with this because no one owes us anything we owe ourselves everything, however, its laughable when politicians and corporates claim that this is working and benefiting those it should benefit.

The only real intervention that the government and corporate South Africa can do to support SMMEs is to give them access to professional services that are essential to running a business.

Through the Enterprise and Supplier Development contributions by corporate government could encourage the firms to contribute their expertise and quantify the contribution in money terms. Imagine if Delloitte, PWC and the other provided accounting and auditing support to SMMEs as part of their enterprise development and law firms, IT firms and HR firms did the same.

They would have lifted a heavy load off the shoulders of the already overburdened SMMEs.

SMMEs do not need handouts but they need support to secure exorbitantly priced professional services that ensure compliance and smooth running of their businesses. This would ensure that a small business could enter the industry and focus on what it does best while getting the operational support it needs without paying a fortune.

Everybody thinks they know what it takes to run a successful small business, but the government and all external stakeholders need to get into the business of asking small business owners about their pain points.

If we actually take the time to listen to what our entrepreneurs need in order to make it past two years of trading, we can grow lasting businesses and change the South African economy for the good of everyone.