What Junk Status Means for South Africa

For the first time in 17 years, South Africa’s credit rating has been downgraded to “non-investment grade” or “junk” status by the ratings agencies S&P Global and Fitch. The third major rating agency, Moody’s, is yet to announce their revised credit rating for South Africa.

This financial downgrade will make it more expensive for South Africa to borrow money as lending to this country is now considered to be very risky.  A bit like individuals with a poor credit rating who resort to borrowing from ‘loan sharks’, the SA government will now have to borrow from investors who are willing to invest in higher risk debt – this is expensive.Putting this into perspective, for the period April 2015 to March 2016, the cost of interest on government debt was R128-billion or 3.2% of GDP (gross domestic product). The cost of borrowing is predicted to rise to around 4.25% of GDP, so that over 4% of GDP will be swallowed up by interest repayments – even before paying off the actual debt.The government will have less money to spend on the services that really matter such as: grants‚ education, health, social grants and infrastructure. To cover the cost of more expensive borrowing, taxes are likely to increase in next year’s budget.Other consequences of junk status:
  • Weakening rand
  • Rising petrol prices
  • Higher transport costs
  • Increasing interest rates
  • Rising inflation
  • Food prices will escalate
  • Economic growth and job creation will be detrimentally affected because investment decisions will be ‘put on ice’
  • Many local and foreign investment funds which invest pensions or savings into bonds (‘IOU’s) are forbidden from investing in countries with “junk” status, and will have to disinvest
  • International investors are likely to sell SA assets
  • Exporters and tourism are likely to benefit
All South Africans will feel the effects of this downgrade.  It is likely to take many years of very hard work for the country to recover enough to regain investment grade status.


Changes to South Africa’s National Treasury

Following President Zuma’s controversial cabinet reshuffle at the end of March 2017, Treasury has undergone some major changes:

  • Malusi Knowledge Nkanyezi Gigaba has replaced Pravin Gordhan as Minister of Finance
  • Sifiso Buthelezi has replaced Mcebisi Jonas as Deputy Finance Minister

Treasury is recruiting for a replacement for The Director General of National Treasury, Lungisa Fuzile, who has resigned.

Here are some facts about the new Minister of Finance (political head of Treasury):

  • Born in 1971 in KwaZulu Natal, Gigaba is the youngest finance minister in South Africa’s history
  • SA’s fourth Finance Minister in two years
  • Formerly the Minister of Home Affairs
  • BA Degree in Education and a Master’s Degree in Social Policy
  • Former President of the African National Congress Youth League
  • Member of the African National Congress’ National Economic Committee (NEC)
  • Member of the National Working Committee of the ANC
  • Member of Trade and Industry Portfolio Committee

Whilst Minister of Home Affairs, Gigaba introduced some major changes such as the travel requirement that all minors produce (in addition to their passport) an Unabridged Birth Certificate for all international travel to and from South Africa.  He also addressed the high rates of immigrant employment in the country by introducing inspections to ensure that all businesses in South Africa have a workforce of at least 60 percent SA citizens.

The South African economy has been badly shaken by these recent events and the road to recovery is likely to be long and difficult.

It is ‘crunch time’ and Minister Gigaba has a colossal job ahead of him in re-establishing trust and the respect of the international markets.

It’s Time to Complete Your 2017 Employer Annual Reconciliation Declaration

Employers have from 18 April 2017 until 31 May 2017 to submit their Annual Reconciliation Declarations (EMP501) for the period 1 March 2016 to 28 February 2017.

The 4th Schedule to the Income Tax Act places the following obligations on all employers who are registered at SARS for Pay-as-you-earn (PAYE), Unemployment Insurance Fund (UIF) or Skills Development Levy (SDL):

  • Must issue employees with an IRP5/IT3(a) where remuneration is paid or has become payable
  • Must submit all reconciliation documents to SARS within the prescribed period

The Employer Annual Reconciliation Declaration is important because it is a way of making sure that the monthly declarations (EMP201’s) which have been submitted during the year are accurate and that they tie up to the payments made, as well as to the IRP5 / IT3(a) certificates issued and ETI (if applicable).

The Annual Reconciliation Declarations (EMP501) must show details of the total amount of:

  • Employees’ Tax [Pay-As-You-Earn (PAYE)]
  • Skills Development Levy (SDL)
  • Unemployment Insurance Fund (UIF)
  • Employment Tax Incentive (ETI) deducted or withheld
  • Details of Employee Tax certificates [IRP5/IT3(a)s] issued during the tax year

The Annual Reconciliation Declaration must be submitted electronically to SARS by the due date.  Penalties and interest will be charged on:

  • Non-submission of the Employer Annual Reconciliation (EMP501) on or before the due date
  • Non-submission of employee IRP5 / IT3(a) certificates
  • Submission of incorrect or inaccurate data relating to the IRP5 / IT3(a) certificates

Should you have any questions or need any help with your Employer Annual Reconciliation, please do not hesitate to contact us.

Special Voluntary Disclosure Programme (SVDP)

The window period for disclosing foreign assets and applying for relief through the Special Voluntary Disclosure Programme (SVDP) closes on 31 August 2017.

Who may apply for the SVDP?

  • Individuals and companies
  • Settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts (if they elect to have the trust’s offshore assets and income deemed to be held by and accrued to them)
  • Taxpayers who disposed of any foreign assets prior to March 2010 (special deeming provisions apply)

Who may NOT apply for the SVDP?

  • Persons who have been given notice of the commencement of an audit or criminal investigation in respect of foreign assets or foreign taxes
  • Where SARS has obtained the information under the terms of any international exchange of information procedure
  • Disclosure where it is argued that all or part of the seed money/subsequent deposits/funding of foreign assets are not taxable in South Africa or have already been taxed in South Africa (the normal VDP channel can be used in these cases)
  • Trusts

Benefits of applying for the SVDP:

  • Only 40% of the highest value of the total of the aggregate of all assets outside South Africa derived from undeclared income and accumulated between or deemed to be between 1 March 2010 and 28 February 2015 will be included in the taxable income and subject to tax in South Africa
  • Undeclared income that originally gave rise to the assets mentioned above will be exempt from income tax, donations tax and estate duty liabilities arising in the past (future income will be fully taxed and assets declared will remain liable for donations tax and estate duty)
  • Interest on tax debts arising from the disclosure will commence only from the 2015 year of assessment
  • Investment income and other taxable events prior to 1 March 2015 will be exempt from tax (future investment income will be subject to tax)
  • No understatement penalties will be levied where an application under the SVDP is successful
  • Other SARS administrative non-compliance penalty relief may apply
  • Where an application under the SVDP is successful, SARS will not pursue a criminal prosecution

Should you require any further information about SVDP, please contact our offices.