Budget 2022: Your Share of Billions in Tax Relief and Business Support

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“Now is not the time to increase taxes and put the recovery at risk! Accordingly, we have decided to keep money in the pockets of South Africans.” (Finance Minister Enoch Godongwana)

 

The 2022 Budget Speech brought some good news and welcome tax relief to personal and business taxpayers,

This is possible thanks to tax revenue collection estimates that exceed the 2021 Budget estimate by R182 billion. Given the improvement in revenue collections, government proposes R5.2 billion tax relief to help support the economic recovery, provide some respite from fuel tax increases and boost incentives for youth employment.

 

Tax changes for individuals

  • Personal income tax brackets and rebates will be adjusted downwards by 4.5% to prevent taxpayers moving into higher brackets due to inflation, resulting in tax relief of an estimated R13.5 billion.
  • The income tax threshold (under 65) has increased to R91,259 per year.
  • Medical tax credits will increase from R332 to R347 per month for the first two members, and from R224 to R234 per month for additional members.

Tax changes for companies

Reduction in company income tax rate from 28% to 27% from 1 April 2022 (i.e. for tax years ending on or after 31 March 2023).

Support for small businesses

To support businesses in distress owing to the Covid-19 pandemic, a new business bounce-back scheme was announced; a new version of the R200 billion loan guarantee scheme that was part of the R500 billion stimulus package announced at the onset of the Covid-19 pandemic in 2020.

It will be implemented using two mechanisms which will be introduced in sequence:

  • Small business loan guarantees of R15 billion will be launched next month provided through participating banks and development finance institutions, with Government underwriting the first 20% of loan losses.
  • Treasury wants to introduce a business equity-linked loan guarantee support mechanism by April this year.

Some other issues to be aware of

  • The Minister cautioned that while VAT and other taxes have not been increased, this may change in the future, saying that if there are permanent expenditure increases in coming years, there would be no choice but to revisit this.
  • Amendments are proposed to provisions relating to the taxation of variable remuneration to ensure wider application of these rules – particularly to the informal sector (‘Variable remuneration’ includes overtime pay, bonuses or commission; an allowance or advance paid for transport expenses; an amount the employee becomes entitled to as a result of unused leave; any night shift or standby allowance; or any amount paid or granted for a reimbursement as contemplated in the Act).  In effect this income will only be taxed on receipt.
  • Provisional tax: Government has proposed a review of the provisional tax system on the basis of international developments.
  • Corporate tax reduction will be funded by limiting the interest deduction and assessed losses. Assessed losses brought forward will be limited to 80% of taxable income. Smaller companies with a taxable income below R1 million will be exempt.
  • To address abuse of such incentives such as the Employment Tax Incentive, government proposes to impose understatement penalties on reimbursements that are improperly claimed in terms of this incentive.
  • The Minister urged all companies that have not already done so to develop plans to progressively reduce their carbon emissions, to avoid facing steep taxes. Exporters will also face overseas border taxes for carbon-intensive goods such as iron and steel, which will reduce their competitiveness.
  • SARS will be reviewing the processes surrounding the issue of tax clearances as well the declaration of the returns in order to curb tax compliance status abuse in which taxpayers may file an inaccurate return in order to obtain a tax clearance.
  • To assist with the detection of non-compliance or fraud through the existence of unexplained wealth, all provisional taxpayers with assets above R50 million will be required to declare specified assets and liabilities at market values in their 2023 tax returns.
  • Other future tax proposals include plans for a new personal income tax regime for remote work, a review of the exemption of foreign retirement benefits in domestic tax legislation, a review of depreciation and investment allowances.
  • SARS says it focused on deliberate work audits of large business, which has generated an additional revenue in excess of R4 billion. It will focus on a number of revenue-generating priorities, which amongst others include the expansion of the use of data and intelligence; increasing capability to maximise debt collections; implementing the Davis Tax Committee recommendations for the corporate and High Wealth Individual compliance landscape; accelerate criminal investigations and counter illicit practices; and shaping the policy on the informal economy.

Budget 2022: Your Tax Tables and Tax Calculator

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How much will you be paying in income tax, petrol and sin taxes? Use Fin 24’s four-step Budget Calculator here to find out.

Have a look at the tax tables below for the new Individual and Special Trust income tax brackets, and for a convenient reminder of the various other taxes that remain unchanged –

SARS Makes SMME Tax Compliance Easier

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“Tax complexity itself is a kind of tax” (Max Baucus)

NOTE: Bear in mind that although many of the resources mentioned below are addressed by SARS to you as a private taxpayer, there is just no substitute for professional advice and assistance when it comes to matters of tax.

“SMME Connect # 1”, the January issue of a new SARS newsletter for SMMEs available here, has focused on the issues around tax compliance in the sector. In the letter SARS acknowledges problems around the pandemic that lead to increased difficulty for SMMEs attempting to meet their tax obligations saying, “We acknowledge that the COVID-19 pandemic has impaired our ability to be physically ‘At Your Service’ as we had to limit the number of taxpayer visits at SARS branches and promote digital channels”. It adds, however, that the bulk of the problem comes from the fact that business owners in the sector either find their obligations difficult to understand, or are not aware of their obligations, and just what is required of them.

In acknowledging the problem SARS has also stated that its direct aim is to make the processes simpler, increase knowledge around requirements and ultimately to bring all SMMEs up to date on their tax compliance. This is what the letter, aligned with a new initiative called Vision 2024, sets out to correct.

Aligned with “Vision 2024”?

In March 2020 SARS introduced their new Vision 2024, which they said was an attempt to update the goals and services of SARS in order to improve efficiency and their ability to collect owed taxes.

“Our Vision 2024 is to build a smart modern SARS with unquestionable integrity admired by Government and public and our international peers. We proceed from the base that all taxpayers are honest and if we make it easy and seamless, compliance will increase simultaneously,” SARS said in a statement at the time.

In line with this, SARS’ new newsletter endeavours to not place blame for past non-compliance. The issue in fact begins with a number of startling stats on the SMME sector in the time of the pandemic. SARS says “95% of SMMEs reported a decrease in revenue attributed to the consumers’ inability to earn income” and that “90% of SMMEs are either struggling or temporarily closed”. The purpose of these stats is for SARS to say, “We understand your plight and aren’t out to get you.” It goes on to state that “When you comply with your tax obligations, you place your business at an advantage by eliminating the potential cost of non-compliance and administrative penalties.”

What are the changes?

In order to simplify the system and make it easier for SMMEs to meet their tax obligations SARS has introduced a number of new measures, initiatives and system upgrades.

The first step is to confirm your “tax compliance status.” This can be done by acquiring a tax compliance pin. The process for doing this is illustrated on a simple YouTube video. The pin can then be used by your accountant over the next 12 months to verify your compliance status.

In addition, SARS has also introduced an online query system designed at assisting taxpayers to raise queries with SARS without going into a SARS branch or calling the contact centre. The query system allows taxpayers to fill in a form and, amongst other things, request a tax number, submit supporting documents, submit a payment allocation, report new estate cases, register a tax representative, make tax compliance status requests and verify tax compliance status.

SARS has also introduced a new “Enhanced Debt Management” process, which will allow taxpayers to arrange debt repayments directly through eFiling for four separate tax types: Personal Income Tax, Corporate Income Tax, Value-Added Tax and Pay-As-You-Earn (PAYE). Previously, taxpayers could only make payment arrangements via a debt collector who had been appointed by SARS, in person at a SARS branch, utilising the debt management regional email addresses, or on the My Compliance Profile (MCP) on eFiling.

The new Enhanced Debt Management Process easily allows individuals and companies to catch up on outstanding administrative penalties and taxes from a number of different pages on the site and gives them the ability to:

  1. Initiate and simulate a payment arrangement, with an instalment plan of up to 36 months,
  2. Supply the reason for the request and preferred method of payment,
  3. Attach mandatory supporting documents where required,
  4. Submit the request if they meet qualifying criteria.

These new facilities come with a reminder for business owners to also submit their own income taxes, which are a requirement in law that can affect the business’ compliance status.

Communication and social media

Finally, SARS has also updated their communications generally, with the newsletter only being one of three communication tools to educate people on their obligations. While the best solution remains conferring with a professional for all possible tax solutions, SARS’ new YouTube channel, which covers such diverse topics as, Understanding Tax Compliance Status, Illicit Trade and Counterfeit Procedures, Value-Added-Tax, Turnover Tax, Registration, Licencing and Accreditation and more, will certainly help the modern SMME owner to better understand their responsibilities when it comes to taxes.

SARS has also encouraged SMME owners to follow the service on social media through the following channels: Facebook, Twitter, LinkedIn and YouTube.

 

Multiple Income Streams? The PAYE Dangers and a New Option for Pensioners

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“Every advantage has its tax.” (Ralph Waldo Emerson)

An unfortunate reality for many non-provisional taxpayers with multiple income streams is a large and unexpected tax liability following a year-end tax assessment – even though PAYE was paid each month on their income streams.

Taxable income streams include salaries and wages, allowances, pensions and retirement annuities, rental income and investment income. Many taxpayers have multiple income streams: a common example is a pensioner receiving two pensions paid by two different administrators; or receiving both a pension and a retirement annuity. Other examples would include a person holding two part-time positions, or receiving both a pension and a salary, such as a widow who is employed but also receives a deceased spouse’s pension.

In all of these and other cases where taxpayers who receive income from more than one source of employment, pension, or annuity, the employees’ tax (PAYE) deducted by the respective employers or retirement funds may not be enough to cover their final annual tax liability assessed at the end of the year.

How can the PAYE deductions not be enough?

Because SARS calculates tax liability annually on assessment, a taxpayer could well face an unexpected and large tax liability, even after having paid PAYE every month on various income streams.

This is because the South African tax system requires adding together all sources of income of a taxpayer into a single total sum, which then determines the tax rate which applies to all the income combined.

So, the more the total income from all sources, the higher the tax rate and the more tax due.

By deducting PAYE every month, employers or retirement funds assist taxpayers to pay their tax liability in advance over the year. When only one employer or retirement fund is involved, the total PAYE deducted monthly should be equal to the tax liability on assessment, leaving no extra tax due on assessment.

However, where more than one employer or retirement fund is involved, each will deduct the correct amount of PAYE on only the salary or pension/annuity they each pay. In addition, each will also independently apply the rebates the taxpayer is entitled to.

When all the sources of income are added together during the year-end assessment, and any rebates are applied only once, the total income often pushes the taxpayer into a higher tax bracket. Applying this correct and higher tax rate on the full amount then results in an additional amount of tax to be paid on assessment.

In practice

The “pension plus salary” example below illustrates just how much more the tax payable on the total combined income assessed at the end of the year could be than the PAYE paid on each separate income stream during the year.

Source: SARS

 

The taxpayer in the example will face an additional R40,570.00 tax liability on assessment, because although a total tax of R22,270.00 had already been deducted by way of PAYE paid during the year, it was too little to cover the full annual tax liability of R62,840.00.

Large, unexpected tax debts such as this often lead to delayed payments and therefore penalties, further burdening the taxpayer.

How to avoid the problem

Taxpayers with multiple income streams, who are at risk of a large tax liability when the annual income tax return is assessed at the end of the tax year, need to have more accurate monthly amounts of PAYE deducted.

Fortunately, the Income Tax Act allows these taxpayers to make additional voluntary tax payments by making a written request to their employers, insurance companies and/or retirement fund administrators to deduct additional monthly PAYE.

To voluntarily pay more PAYE, you have two options –

  1. The first option involves applying a single percentage at which PAYE should be deducted by all employers and retirement funds that pay a salary or pension/annuity to you.
  1. The second option is to increase the amount of PAYE deducted by one or more employers or retirement funds but is more complex to calculate.

Either way, professional assistance is highly recommended. Ensuring that more appropriate amounts of PAYE tax is deducted during the year will eliminate surprises and ease the financial burden when submitting annual tax returns at the end of the tax year.

Pensioners – a new option for you from 1 March

Not many pensioners are currently making use of this option but, fortunately, recently introduced legislation has enabled SARS to provide them with a new service from 1 March. Using the latest data available to it, SARS will determine a more accurate PAYE deduction amount for pensioners with multiple income streams, and then automatically provide their retirement fund administrators with this new PAYE deduction percentage. This will allow a more accurate amount of PAYE to be deducted from pensions or annuities payable from March 2022. The rate will be valid for the entire tax year unless the taxpayers’ circumstances change. However, you can request retirement fund administrators to rather use the normal PAYE deduction rate, or to deduct PAYE at an even higher rate than the increased rate provided by SARS.

 

Budget Speech 2022

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In his 2022 budget speech, Finance Minister Enoch Godongwana revealed a more positive picture for government’s finances. The South African Revenue Service took in R182 billion more than expected in the past year.

These stronger revenues allowed the Minister to announce a number of tax relief measures. “Now is not the time to increase taxes and put the recovery at risk,” he said.

He also emphasises that: “Corruption is a major blight on our country. It has lowered our economic growth potential, made us fiscally more vulnerable, and severely weakened the state’s capability”. National Treasury will be looking to recover money from those involved in corrupt activities highlighted by the Zondo Commission

A Brief Summary

Personal Income Tax Relief
Tax brackets and rebates have increased by 4.5%, in line with inflation. The highest marginal tax bracket of 45% is now from R1,731,601. The primary rebate will be R16,425, up from R15,714.
Tax Free Threshold
The annual income level at which under-65s will start paying tax was raised from R87,300 to R91,250.
Medical Tax Credits
Increased from R332 to R347 for the first two members and from R224 to R234 for subsequent members
Corporate Income Tax
Falls to 27% for any tax year beginning on or after 1 April 2022.
Employment Tax Incentive
To help address youth unemployment, the employment tax incentive will increase from a maximum of R1,000 per month to R1,500 per month in the first 12 months, and from R500 to R750 in the second 12 months.
Transfer Duties
Transfer duty rates were unchanged.
Capital Gains Tax
No changes were announced to CGT.
Retail Savings Bonds
A new ‘top-up’ bond will be offered from April 2022, allowing individuals to invest an initial amount from R500 and top up in increments of R100.
Business Bounce Back Scheme
To support small businesses affected by Covid-19, R20 billion will be made available as guarantees for small business loans and equity-backed loans.
Tax Free Savings Accounts
The annual cap on contributions to tax-free savings accounts remains at R36 000 from 1 March 2021, with the lifetime limit also remaining at R500 000
Sin Taxes
Overall, increases were between 4.5% and  6.5%, below the increases last year that were above 8%.

Your Tax Deadlines for February 2022

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  • 7 February Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 25 February Excise Duty payments
  • 25 February Value-Added Tax (VAT) manual submissions and payments
  • 28 February Value-Added Tax (VAT) electronic submissions and payments, PIT & CIT Provisional Payments where applicable.

Seven Crucial Tax and Other Issues to Address When an Employee Dies

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“Employees are the key to your success… Treat them well!” (Ron Kaufman)

 

The death of an employee can be a difficult situation in any company, but particularly so in smaller businesses where employees work more closely together and often consider each other more than just co-workers.

In addition to handling the emotional aspect of such an event, companies must also keep the business running and take care of various compliance and tax issues.

Here are seven crucial issues to address swiftly after the death of an employee.

Here are seven crucial issues to address swiftly after the death of an employee.

  1. Contact with the employee’s familyObtain the name and contact details of a person from the deceased’s family with whom the company can communicate about a range of matters, including funeral details, collecting company property such as keys, equipment, (company cars, computers and the like) and credit cards, finalising employee benefits procedures, and the return of the deceased’s personal belongings.

    It is also helpful to have the details of the executor of the deceased employee’s estate, who is also the ‘representative taxpayer’ for the deceased and responsible for finalising the deceased’s financial and tax affairs.

  2. Inform employees and establish internal processesNotify other employees with respect, tact and care, providing as much information as possible. Nominate a company representative to answer employees’ questions; to accept flowers, communications and donations on behalf of the deceased’s family; and to make appropriate plans for memorials, tributes or gestures.

    Realise that some people are better able to deal with such an event than others. Encourage employees to seek the help of lay therapists or religious advisors, and to provide mutual support to each other. Also consider arranging grief counselling and providing time off as needed, as well as for attending the funeral, preferably on a paid basis.

  3. Keep the business runningUpdate business roles and functions and reassign space and equipment to reflect the employee’s death in a respectful and compassionate manner.

    To minimise disruption to the business, assign the deceased’s tasks, functions and responsibilities to other team members, and redirect phone, voicemail, email and mail communications as soon as possible. Collect company property and address security issues as per the company’s established termination procedures.

    Inform clients, suppliers and other stakeholders who are affected of the change, while beginning the process of finding a suitable replacement.

    Compensate for those employees who find it difficult to focus or make more mistakes, especially where this presents a safety issue, for example, in manufacturing or production environments.

  4. Calculate the final remuneration and benefitsIn calculating the deceased employee’s final renumeration, the normal procedures for terminating employment must be followed: all hours worked until the date of death must be compensated, any outstanding leave must be paid out and, if the employee had any savings or loans with the company, these need to be finalised. Depending on the circumstances, payment will be made to the executor of the deceased estate, to the family or to a beneficiary.

    At the same time, finalise employment benefits, such as medical aid and pension or provident fund membership, ensuring that all compliance issues are promptly attended to, so the family does not experience delays caused by the company when claiming benefits.

  5. Take care of tax issuesWhether the deceased was registered with SARS or not, and whether there is estate duty payable or not, SARS must be notified of the death of the person. This must be done by the executor of the deceased employee’s estate or by a tax practitioner acting on behalf of the deceased or the company.

    The employer must provide the executor acting as the representative taxpayer of the deceased employee with the employees’ tax certificate within 14 days after the employee passed away. The provisions that state that employees’ tax certificates may not be delivered until the EMP501 reconciliation has been submitted does not apply.

    Once the deceased employee has been coded as such by SARS, all outstanding tax returns should be submitted up to the date of death by the executor of the deceased’s estate. This applies to all tax types – income tax, VAT, PAYE, SDL, UIF and estate duty. As soon as all the tax liabilities have been paid in full, a Deceased Estate Compliance (DEC) letter is issued for all taxes except estate duty and an ED clearance letter for estate duty. Any refund due will only be released if all other taxes are up to date, all accounts have zero balances and all outstanding returns have been submitted and processed.

  6. Take care of UIF mattersFollowing the death of an employee who contributed to the Unemployment Insurance Fund (UIF), the dependants – a spouse or life partner, children under the age of 21 or a guardian of dependent children – can claim benefits from the UIF. The death benefit is the amount that the employee could have claimed if he/she was unemployed and it is paid out in one payment.

    The dependants must apply within six months of the date of death by going to a Labour Centre to complete and submit Form UF126 (for a spouse or life partner) or Form UF127 (for a child).

    The dependants will also need the following from the deceased’s employer:

    • Copies of the deceased’s last six payslips;
    • The employer’s details on form UI19; and
    • A service certificate from the employer.

    They will then receive another document, Form UF128, which needs to be filled in by the deceased’s last employer and then submitted at the Labour Centre.

  7. Take care of Compensation Fund issues

The surviving spouse or dependants of a deceased employee may be able to claim from the Compensation Fund if the employee died while working or as a result of a work-related accident, injury or disease. The Compensation Fund covers most employees.

 

By law, anyone who employs one or more part- or full-time workers must register with the Compensation Fund and pay annual assessment fees, based on the employee’s earnings and the risks of the type of work. Workmen’s compensation is a no-fault system, which means there is no need to prove that an employer was at fault. The compensation awarded does not form part of the deceased employee’s estate and can also not be attached to satisfy a debt.

 

Assisting the deceased’s family in these matters reflects well on the reputation on the company/employer.

Six Tips for Creating a Distraction-Free Home Office

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“Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.” (Albert Einstein)

 

To many people the idea of working from home can seem like a dream. Just avoiding the daily commute makes it worthwhile for many, but add in the benefits that arise from being present for your family, and being able to work the hours that suit you, and suddenly it’s an extremely attractive proposition.

While it definitely does depend on the individual, working from home can present a number of new challenges when it comes to getting work done. Laundry is building up, the home needs cleaning from the weekend, and your TV and fridge are also always on hand.

Luckily there are some small changes anyone can make to ensure their home office is at least as good as a corporate office for concentration, and potentially even better for productivity.

  1. A dedicated workspaceWhile not everyone has the ability to turn one room of the house into an office, it is wise to try and create a dedicated workspace for when you are “at the office”. Even just pushing a desk into the corner of your lounge and working from there will put you in the right state-of-mind for getting your business done, and at the end of the day you can log off and go back to your family life. Sitting in bed to work may be fun for one day, but long term blurring of the lines between the spaces for work and those for play can mean you can never really get away from your job.

    For the same reason it may be wise to have a “work computer” and one for social media and recreation. Use the work computer the same way you would the one at any corporate office. When you turn it on there will be no non-work apps to distract you, and you should immediately be able to get into a work state of mind.

    Ideally your work desk should face out a window, or failing that, towards a wall so you aren’t constantly looking at the distracting build-up of dishes, or the temptation of the television. Put up some work-related art, keep the table organised and you will find that when you sit down you are already thinking of working.

  2. Noise is a distraction tooIt’s not just visual things that can be distracting. The noises of a home can also take you out of that important work mindset. If you live alone this will be a lot easier, but if you have a family around, their activities can break your train of thought as easily as if they were tugging on your shoulder.

    You don’t need to go overboard but finding ways to mute the external noises will help you to concentrate. Consider changing your office door from a hollow one to a solid wood one. Adding weather-stripping or a door sweep along the bottom of the door can also cut down on the amount of sound pollution that seeps in. If you use a corner of a common room for your office, consider investing in a pair of noise-cancelling headphones to ensure your thoughts remain entirely undisturbed. 

  3. Get an office chair By now you will no doubt have spent a day working from a dining room chair, or on a couch and will know that this is not an effective way to do it. There is a reason offices splash out on their chairs. Dining room chairs are intended for short stays whereas an adjustable office chair will enable you to set your ideal height and maintain good posture throughout a full workday. No one’s watching to see whether you’re sitting up or slumping, but your back will let you know if there’s been any cop-out.

    Giving yourself a sore back or painful legs is a great way to ensure you get no work done, so apart from getting a good chair, make sure you take scheduled breaks away from your computer. Be sure to look away from the screen every 20 minutes and don’t be afraid to get up and walk around the house from time to time. A study conducted a few years ago by DeskTime indicated that the most productive interval was 52 minutes of work interrupted by 17 minutes of break. Just don’t allow yourself to get caught up in home chores.

  4. Keep it tidyA cluttered desk may make you look busy, but it isn’t doing you any favours when it comes to focus. You might be surprised by just how much paper can build up doing an average job and often this is something you need to keep under control. Getting decent paper storage is therefore an important thing to consider when building a distraction-free office.

    If your job is particularly paper-heavy you may want to invest in a filing cabinet, but for most a couple of desk drawers or shelves should be fine. Set aside a designated place for incoming mail or work on the to-do list, another for projects in process, and a third storage area for completed projects or paid bills. Organising your computer files in a similar way, to keep upcoming work and work in progress in a designated accessible area and finished projects stowed away in a cloud database, may help you stay on top of the jobs you need to do.

  5. Be Work Ready When you sit down to work you want to be able to do just that. In order to make sure you will be at your most efficient your workspace needs to be work-ready. You don’t want to have to interrupt your flow with a trip to the shops to get printer paper for example. Invest in your workspace so that it’s the same as you would find in any corporate building.

    Make sure you have the stationery and things you need to get the job done, and this includes having a good internet connection. How easy is it to get to your router if you need to reset something? Do you have enough bandwidth for online meetings? What is behind your desk? What will your colleagues and clients see when they get you on camera?

    Have everything on hand that you need, and make sure it’s up to date and in working order, because trying to make things work with the wrong equipment, or dealing with problematic old technology, are real distractions. As an added benefit, the investments you make in your home office, and the equipment you use, may be tax deductible (but there are many factors at play here so professional advice is essential before you claim!).

  6. Have a plan for your family and pets

    Children and pets are probably going to be the biggest distractions to your day, so make a plan to ensure neither interrupt you. Children must understand that while you are working only emergencies are worth interruptions.

    Pets may be a little simpler – replace their squeaky play toys with chew sticks, and move their beds close to you so they feel comfortable lying quietly with you even though you aren’t being attentive. Good luck by the way with persuading your cat not to sit on your keyboard – this article may help but all bets are off!

    Make sure you plan to take time out to spend with both the children and your pets, so they know that you are not ignoring them, just busy when you are at your desk. Taking your dog on a lunchtime walk, or playing with your children for an hour on a sleepy summer’s afternoon can really invigorate you for the rest of the day, and are the absolute perks of working from home as well. You might as well enjoy it.

Small Businesses That Survived 2021 – How They Made It

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“At the heart of the strategy is a strong belief…that systemic problems require systemic solutions” (MIT Sloan associate deans, Fiona Muray and Ray Reagans)

 

Businesses usually spend the last quarter of the year reflecting on how they have done and using the lessons learned in planning for the year ahead, while also keeping a keen eye on government’s financial plans as revealed in the budget – which will be tabled this month.

The 2021 calendar year has been tougher on the private sector than any other time in memory due to the global pandemic. A study by Wits University on accounting and governance in the context of covid-19  suggests that the danger of the covid-19 pandemic and resultant restrictions on businesses is the knock-on effects and  the negative impact in the short-to-medium term and short-to-long term, rather than the immediate impact.

The knock from 2020, when the pandemic was first declared, was apparent in the first half of 2021 – with record breaking rates in demand for capital and liquidations.

So how did the businesses who made it through 2021 do it?

  1. Proactive accounting and governanceGood quality accounting and governance with qualified finance professionals helped these companies navigate through the storm. Particularly in addressing the necessary extra expenses involved in setting up remote working and communication systems and equipment for their staff and even, in some situations, the costs of Personal Protective Equipment.
  2. LoansThe South African Reserve Bank reported that “Year-on-year growth in total loans and advances extended by monetary institutions to the domestic private sector accelerated slightly between March and October 2021, after slowing markedly since the onset of the national lockdown. The gradual lifting of lockdown restrictions boosted the demand for loans by companies in particular, although growth remained subdued.”
  3. Good saving habitsReducing spending on anything but necessities was essential during the pandemic, and it is interesting to note that South African saving trends were at an 11-year high by the end of the Second Quarter of 2021. This was amid fears of an uncertain future due to the ongoing covid-19 pandemic and the rate remained high towards the end of last year. The South African Reserve Bank said that the high rate was driven up by higher savings by companies and households.
  4. Embracing digitalBusinesses that survived and even, in some circumstances, flourished during the global slowdown, used the opportunity as a means to be innovative and embrace digital, and where appropriate and possible, they developed or expanded their online offerings. This included keeping their essential staff busy by investing in systems to enable them to work remotely.

    The CEO of IBM, Arvind Krishna famously said, “When we look at the usage of AI and cloud, I think it is especially going to accelerate also not just us, but how our clients are going to go on their digital transformations. And I believe this crisis is only going to accelerate that as we go over the next few months.”

Ask a professional for tips on how to use these lessons effectively as the pandemic continues.