How Different Will Our Landscape Be Post-Coronavirus?

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“Prediction is very difficult, especially if it’s about the future” (Niels Bohr)

Pandemics kill more people than wars – the introduction of the Black Death plague led to 14th Century Europe losing 40% of its population within two years. What will our world look like when normal life begins to return?

Predicting the future can never be an exact science, but the consensus seems to be that the following four main trends are, in line with historical precedent (except perhaps the 1918 Flu Pandemic which was dwarfed by the effects of the First World War) likely to await us –

  1. Labour is stronger, capital is weaker

    A recurring feature of pandemics is that workers get higher wages for up to four decades after the end of the pandemic. Already, a strike at Amazon has led to better benefits for workers. In South Africa, we have seen health workers demanding better protective equipment.

    Research shows that this increase comes at the expense of capital which means lower returns for shareholders.

  2. Globalisation will be weakened

    Coronavirus has exposed the flaws within global supply chains, such as an overreliance on China supplying key medical ingredients. Governments are reducing this risk by turning to local manufacture and services for such ingredients. Thus, globalisation will be clipped in favour of local production and services – creating opportunities for South African companies.
  3. Slow recovery 

    The end of a war is accompanied by massive investment as businesses and infrastructure are rebuilt. This usually quickens economic growth. Pandemics result in no or anaemic growth – there is no scope for massive investment and economic recovery takes a while to reboot.

    This is exacerbated by people feeling down and exhausted after the pandemic. They are cautious and save money, contributing further to the economic malaise. This reduction in economic activity leads to low interest rates.

  4. Victimisation

    Another thread running through post-pandemic times is people looking for someone to blame for the virus – often foreigners become the targets. Here with our record of xenophobia, this is something we need to guard against.

Whilst the historical evidence of events after a pandemic points to difficult times, there may be opportunities for your business in, for example, the reduced global supply chain. You will also need to keep an eye on your staff to keep their morale up. 

Tips for Managing your Staff Working from Home

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In this brave new world of COVID-19, many people are working from home. Even after there is a cure for the virus, this trend will likely continue.

Researchers at Harvard University have come up with some good ways to ensure you get maximum productivity and loyalty from your employees working remotely.

Key points

  1. Both managers and staff miss face to face meetings – managers worry how effectively their people are working and employees miss the support and guidance they get from managers.

    Managers should introduce structure and discipline into their interactions with their staff – setting up a time each day (or whatever is needed) to connect to each other and, possibly, the team the employee is in. This can cover all the employee’s and team’s work requirements, bringing them up to date with events in the company. Not only does this improve productivity but it increases staff morale and loyalty.

  2. Access to information can become difficult between staff members – for example, a relatively new employee asks a staff member for information who initially ignores the request until the new staff person starts sending out more aggressive emails.

    Managers need to be aware of this type of conflict and focus on new employees to iron out any potential difficulties.

  3. Employees get lonely and can over time feel they’ve been cut adrift which is bad for their stress levels and can lead to a drop in productivity.

    If managers don’t have good listening skills and empathy, then they need to add these to their armoury and be on the lookout for loneliness manifesting in people who report to them. In the initial stages, it may pay to also have Human Resources contact employees working remotely.

  4. Home distractions. Working from home can lead to distractions of members of staff by spouses and family.

    The company needs to ensure that the employee has the required technology and IT security in his or her home. Having a separate office in their homes is also important.

  5. Staff need time to catch up with their colleagues’ personal lives and the manager should allow time for this when there are video calls. This will reinforce that employees belong to and are part of a team.

There is much to learn in terms of skills and keeping staff morale and productivity at high levels, when employees work from home.

Be Ready for a SARS Lifestyle Audit

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We read about Eskom staff having to undergo lifestyle audits so that corruption can be identified and stamped out.

SARS have been conducting lifestyle audits since 2007. These audits are conducted when SARS suspects that the taxpayer is not declaring all his or her income and thus is underpaying tax due.

SARS have access to many sources of information 

Data can be accessed from:

  • Your banks
  • The Deeds Office for property transactions
  • Financial institutions for mortgage loans or motor vehicle finance
  • Vehicle registrations
  • Social and other media where your lifestyle can be ascertained
  • Perhaps most significantly jealous neighbours or “friends” who tip off SARS that your lifestyle exceeds the purported income you earn (SARS actively encourage people to tip them off when they think people they know are living beyond their means).

How do SARS select people for lifestyle audits? 

SARS does not disclose the criteria it uses to start probing taxpayer’s affairs or how it selects those who have to complete a lifestyle audit. If you are selected, you have to complete the audit in the time set out by SARS.

One individual selected demanded to know the reasons why he was picked, and refused to complete the 26 page “lifestyle questionnaire” sent to him by SARS (seemingly after a ‘third party’ tip off). He had never registered as a taxpayer, nor had he ever submitted tax returns. The matter went to the High Court which rejected the individual’s right to demand “SARS confidential information” and ordered him to provide the information required by SARS, on pain of committal to prison for contempt of court until he submitted the lifestyle questionnaire.

What to expect if you are selected

You will need to provide details of day to day living expenses including rent or bond payments, groceries, entertainment, vehicle expenses, holidays – in fact every item of cost you and people related to you incur. These will be reconciled to bank statements. In addition, SARS will probe all sources of your income.
In doing this process SARS can request information going back five years. If you don’t have the necessary documentation to justify income or expenditure, then SARS can levy taxes on these amounts. Keep good records.

It pays to be honest and as thorough as possible when completing this process. As noted above SARS have many sources of information to check the data provided by you.

The bad news

If a taxpayer has been under-declaring income or cannot justify expenses that have been claimed, then SARS will issue assessments for these amounts. Penalties of up to 200%, plus interest may be levied by SARS who can also report the taxpayer to the National Prosecuting Authority for potential criminal proceedings. The only bit of good news is that SARS do not use search and seizure operations when conducting lifestyle audits – these are for criminal cases that SARS pursues.

Lifestyle audits are nerve racking and risky for taxpayers. Keep good records and consult your accountant before submitting information to SARS. 

Businesses: How to Survive the Coronavirus Panic

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“Never let a good crisis go to waste” (Winston Churchill)

Globally, the COVID-19 coronavirus has spread panic amongst societies and markets. Businesses are suffering their most challenging times since the 2008 Global Financial Crisis.

This is the time for urgently reviewing how events have affected your business and how you can respond to the seeming chaos.

Cash is king

When faced with great uncertainty, conserve cash and shore up all your credit lines. This will give you greater flexibility when strategizing a response to the coronavirus. You may, for example, be able to buy a crucial stock item for a discount from one of your suppliers, thus ensuring that you can continue operating. Apart from strengthening your position with your competitors, this could help the supplier to remain in business – relationships are important, and this supplier will be grateful to you.

Trim costs wherever you can – some of this is being done for you as many companies are cancelling travel, resulting in many meetings and conferences being called off. Capital expenditure is being pruned globally and there may be opportunities to delay some of your current capex.

Keep your staff healthy

Apple has already told staff to work from home to reduce the risk of catching or spreading the coronavirus. Desks are being spaced to reduce the possibility of catching the virus and meetings are being cancelled or are taking place electronically.

Make sure the risk of staff catching the virus is minimised and have a succession plan if some key members are incapacitated by the coronavirus. Take particular care of staff members who have health issues, as they could become seriously ill or die if they catch the virus. As health authorities are advising people to frequently wash their hands, ensure that you have enough hand washing dispensers.

As many of your staff will be working from home using smart phones and their own desktops, have your IT department mitigate the risks of hacking or computer viruses getting into your IT platform.

Perhaps, most importantly, communicate often with your employees and managers. Regularly follow updates from the World Health Organisation and the local Department of Health. This is a time of uncertainty, as there is no definitive knowledge on how the coronavirus will evolve and thus sharing the information you gather on the disease, will improve the health and morale of staff in your business.

The Occupational Health and Safety Act imposes obligations on employers to provide a healthy environment for their staff. Much of the above is in line with ensuring that you comply with that Act’s requirements, but you need to ensure your organisation is compliant with the legislation.

Your supply chain

This is clearly a key area and working out the risks of suppliers and contractors being unable to supply you is a key task. Some of the important areas will be changing your safety stock holdings, reviewing your contracts with stakeholders and assessing the risks and the consequences of default. This is where it really pays to have cash.

As we said above, keep in mind the long term relationships with suppliers.

You also need to review your insurance policies – will they pay out if certain scenarios unfold? Do you need to take out different policies?

Reacting, planning and preparing strategies will ensure you have the agility to ride out this crisis and may even strengthen your position with competitors.

Is Passwordless Authentication the Next Big Step?

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Consider these facts:

  • Over 80% of hacking is password related.
  • In the first world the average cost of fixing a successful hack is $3.9 million.
  • The average person spends 11 hours a year changing or resetting his or her passwords. For a company with approximately 15,000 employees, the cost of this is $5.2 million per annum, including a cost of $1 million for password resets alone.
  • This average person has between 25 to 85 passwords for the various applications he or she uses.
  • In online retail, 90% of attempts to get into the website are by hackers who have a success rate of about 1%.

The implications for world economic growth and for business

These statistics adversely impact customers who find using the internet a stressful experience and thus often limit the time they spend on the Web. Research indicates that most consumers will pay a premium to have a pleasant online experience – no passwords expired, no one time pins etc.

For businesses the main issue is the time spent in ensuring their internet gateways are safe from hackers to avoid the reputational and other damage they will suffer if they are hacked. Invariably, this leads to more complexity which scares off customers, encourages hackers to find flaws and so the spiral continues.

Nor is this only dragging down businesses, it also has a sizeable effect on the global economy. Just look at the world’s ten largest companies:


Source: Bloomberg, Google

The seven companies shown in blue above are based on a “platform model”, highlighting the importance of this issue to the world’s economy. With seven of the companies in the tech sector and two in financial services (Berkshire Hathaway, J.P. Morgan), it is obvious just how important their internet platforms are to their success.


The solution

A good solution will need to have the following elements:

  1. Security, for obvious reasons.
  2. Privacy – with the pending full commencement of the Protection of Personal Information Act this will become an even more important element.
  3. Sustainability – it needs to be robust, flexible and long lasting.
  4. Inclusive – with the rapid breakout of people into distinct groupings (LGBT, #Metoo etc), the solution must cater for all these needs.
  5. Scalability – as the world is making greater use of the internet, any new system must be able to rapidly scale up.
  6. Pleasant user experience – it needs to be easy to use.

This solution should move away from passwords towards alternatives like biometrics (facial recognition, fingerprint authentication and the like), QR code authentication and even to the system recognising unique habits you have like how you toggle a mouse.

These solutions are becoming more available and in the US companies which have moved away from passwords are finding their sales line growing, costs being reduced, productivity rising and happy customers.

Make sure you don’t lag behind your competitors in this important developing field.

Do You Need Business Interruption Insurance?

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Catastrophes like floods and fires do occur and there is insurance to cater for these types of events. There are two different types of insurance cover for these events – one to repair or replace the assets damaged (your normal insurance policy) and one to compensate you for the losses incurred during the time it takes to get the business going again. This latter one is known as ‘Business Interruption’ or ‘Loss of Profits’ insurance.

Statistics show that nearly three out of four businesses never recover from a catastrophic event and it is therefore important to ensure that your Business Interruption insurance has been carefully thought through.

What to insure for

You need to have a good grasp of your costs and expected sales and gross profit. You don’t want to underinsure so if your business is growing reflect that fact – for example if you expect 10% growth (and trends in your business justify this) show this to insurers or you won’t get paid out this additional amount.

It is important to make sure that all your projections are well grounded and can be defended as they will be closely scrutinised by loss adjustors in the event of a claim. Thus, the better you understand your costs, the less chance of having a claim either rejected or adjusted downwards.

Another critical factor is the indemnity period. This is the time you will be covered for whilst out of business. For example, if you put a six-month indemnity period in your policy, you will only get paid out for six months even if it takes twelve months to get the business back on its feet again.

Let’s look at an example… 

Bernie has a cosmetics factory and his year end is 31 December.

Bernie’s Cosmetics Factory
Budget for Year R
Sales 120,000
Cost of Sales (45,000)
Purchases (10,000) **
Wages (35,000)
= GROSS PROFIT 75,000
COSTS (46,000)
Salaries (20,000)
Distribution (6,000) **
Maintenance (5,000) **
Rent (15,000)
= PROFIT 29,000


On January 2, the factory burns down. It will take 12 months to get the factory up and running again.

Business Interruption Claim R
ADJUSTED GROSS PROFIT 65,000
Gross Profit 75,000
Less Purchases (10,000)
COSTS INCURRED 40,000
Salaries 20,000
Rent 15,000
Preparation Cost 5,000 ***
= CLAIM 105,000 *
*Adjusted gross profit plus your incurred costs.
**Variable costs which will not be incurred in the 12-month period of re-establishing the factory.

  
  ***Putting together claims is a time-consuming task, so include it in your policy.

  
  NB! Include VAT in the assured amount as insurance pay outs include VAT.


You can see from this simple example that this is a very complex process – spend time with your accountant getting to grips with your revenues and costs. Also use a reliable insurance broker.

Remember that 43% of businesses that suffer a catastrophe never trade again and a further 29% go out of business within two years.

Your Selection of Budget 2020 Tax Calculators

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  • How long will you work for the taxman today?

    Input your salary into the 2020 Tax Clock calculator and find out how many hours you will spend today working for the taxman, and at what time precisely you will finally start working for yourself (warning – it’s not pretty!).

  • How will your income tax change? 

    Put your monthly taxable income into Fin24’s Budget 2020 Income Tax Calculator to find out.

  • How much extra will your sin taxes cost you this year?   

    Work out how much more you will be shelling out for spirits, wine, beer and cigarettes (or how much you will be saving if you don’t indulge!) with Fin24’s Budget 2020 Sin Tax Calculator.

Directors: “Knowing” Is A Potentially Career-Threatening Word for You

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“An investment in knowledge pays the best interest” (Benjamin Franklin)

The Companies Act 2008 places onerous duties on directors and if you do not meet these obligations, you risk personal liability for any damages flowing from these actions.


“Knowing” in the company law context

A director gets “knowing” (actual knowledge) of the company by remaining apprised of the conditions of the relevant industry, what is revealed by the media of the business or its competitors and from the “pack” of data received before a directors’ meeting.

The Companies Act goes further and says a director “reasonably ought” to know important matters in the company. In other words, a director should look beyond what is presented to him and be on the lookout for any other issues that could impact the company.

To gain “reasonably ought” to know information, a director should investigate pertinent matters or may take “other measures” which would result in gaining valuable data – for example, the director may contact an executive director to clarify a matter.

An example to clarify – how to protect yourself from personal liability

  • Let’s take “Bill”, a non-executive director of a company which has a subsidiary that imports equipment from China. Bill knows that the subsidiary has purchased a building and owes a R20 million bond on it. The company has guaranteed the R20 million liability.
  • Bill has a board meeting in a week’s time and finds that there is no mention of the subsidiary’s bond in his management pack.
  • He has read about the new COVID-19 coronavirus and realises that the factory that supplies the equipment to the subsidiary has been temporarily closed and it will take more than a month to get the factory back in production when it reopens. It will then take one month for it to build up stock. Shipping time to South Africa is six weeks. Bill finds out that the subsidiary has only one month’s stock and thus faces potentially about three months of trading without stock. The subsidiary is highly geared, and Bill is concerned that it could stop trading which would mean the R20 million guarantee will be called up and this could affect the company’s solvency.
  • Naturally, Bill carefully documents all of this and raises his concerns at the board meeting.
  • A majority of the board are reassured by the executive directors that Bill’s concerns are not valid. Four months later, the subsidiary ceases trading, and it and the company end up in liquidation.
  • An investigation is carried out and one of its findings is that the company “reasonably ought” to have anticipated that the coronavirus would create solvency problems for the subsidiary and their failure to act has caused both companies substantial losses. Consequently, the directors are personally liable for these losses.
  • Not all directors of course, as Bill shows the investigators the work he did and how he was outvoted at the board meeting. He avoids being held liable for the losses.

Directors be wary of this – don’t just rely on management packs etc but also look for the matters you “ought to know” about. This applies also to alternate directors and senior managers who are deemed by the Companies Act to effectively have the powers of directors.

Budget 2020: Some Tax Relief!

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Taxpayers were preparing for once again being squeezed in 2020, but we have been pleasantly surprised as we have been given a myriad of tax concessions in this budget. In fact, the average taxpayer will be over 5% better off than in 2019/2020.

The Finance Minister has decided that taxpayers have borne the brunt of austerity for too long. Instead he has opted for R261 billion in cost reduction over the next three years – the bulk of which (R160 billion) will come from slashing remuneration of government and State Owned Enterprises (SOEs) staff.

Thus, Tito Mboweni surprised the market by taking on a holy cow – public servants’ remuneration. The real issue now is how the unions (remember they are key government allies) will respond. They have already rejected the Budget proposals, so some tough bargaining lies ahead.

The following proposed tax changes were announced 

  • Income tax rates are left unchanged. Tax brackets (and tax rebates) were favourably adjusted by R14 billion. This results in a net gain of R2 billion for taxpayers, as fiscal drag will amount to R12 billion (the amount that inflation would have pushed taxpayers into higher tax brackets).

    A person earning R460 000 a year will now pay R3 400 less in taxes in 2020/21. The average saving per taxpayer is 5.2%.

    This R2 billion loss to the government will be covered by R1.75 billion from Carbon taxes and R250 million from an increase in the plastic bag levy.

  • “Sin” taxes have mainly had inflation-linked increases with beer, wine, spirits and cigarettes going up on 1 April (see tables below). Of interest here is that heated tobacco products (such as hubbly bubbly) will now be taxed at 75% of the excise rate on cigarettes and a vaping tax (E-cigarettes) will be introduced in 2021.
  • Carbon Tax will increase by 5.6% from R120 per ton to R127 of carbon dioxide equivalent. Another “green tax”, the plastic bag levy has been increased to 25 cents per bag.
  • The fuel levy will increase by 25 cents a litre on 1 April (16 cents for the general fuel levy and 9 cents for the Road Accident Fund).
  • Medical tax credits will rise by R9 to R319 for the first two beneficiaries and by R6 to R215 for each additional beneficiary. This is also unexpectedly good news as the thrust of recent budgets has been to limit medical tax credits ahead of the introduction of National Health Insurance (there was very little in the Budget about NHI).
  • Expat Tax – the amount of remuneration earned outside South Africa, that qualifies for exemption from normal tax will be increased from R1 million to R1,25 million. This is also a positive development.
  • Micro Business Turnover Tax. There is a marginal decrease in the Micro Business Turnover Tax, whilst Small Business Corporation Tax remains unchanged.
  • The Transfer Duty Exemption has been increased to R1 million from R900 000, which means you will pay zero transfer duty on any property valued up to R1m.
  • The Business Travel Tax Free Allowance has increased to R3.98 per kilometre (R3.61 last year).
  • The annual limit on contributions to a Tax-Free Investment has been increased by R3 000 to R36 000.

The following tax rates are unchanged

  • Value Added Tax at 15%.
  • Dividend tax at 20%.
  • Company Tax at 28% and Trusts at 45%. The Minister said amendments will be made to reduce certain exemptions, review and put end dates on incentives, limit the deduction of assessed losses to 80% of taxable income, ahead of announcing a drop in company tax rates to make South Africa a globally-competitive corporate workplace.
  • All withholding taxes.

The following also remained the same 

  • The Interest Exemption on Income Tax – R23 800 if you are under 65 and over 65 R34 800.
  • Retirement savings contribution limit remains at 27.5% of income.
  • The inclusion rate applying to Capital Gains – the maximum rate at which normal tax on capital gains will be levied remains at 18% for individuals, 22.4% for companies and 36% for trusts.

Tax Tables – Budget 2020

 Source: National Treasury

2020 Budget Summary

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