ESKOM’S R59BN BAILOUT CLOSER AFTER SPECIAL APPROPRIATION BILL PASSED

The Bill must now be approved by the National Council of Provinces before it can be signed into law by the president.

CAPE TOWN – The National Assembly has passed the Special Appropriation Bill, which aims to provide Eskom with a R59 billion bailout for the rest of this year and the next financial year.

The Bill must now be approved by the National Council of Provinces before it can be signed into law by the President.

Debate on the bill saw opposition parties blame the ANC for state Eskom finds itself in, with some, like the EFF and the Freedom Front Plus, saying they could not support it.

Wrapping up the debate, Finance Minister Tito Mboweni told the House that Eskom’s problems were not just financial.

“One of the key issues that we need to solve is by appointing the correct people to run Eskom. That’s what we need to do. We must appoint the correct board of directors, we must appoint a competent management team and we must then be in a position to hold the board of directors and the management team accountable for the operations of Eskom.”

Mboweni said that Eskom’s problems are many and complex.

“The problem at Eskom is not just financial and if we’re going to reduce a complex problem to the lowest common multiplier, being the financial problem, we’re not solving the problem. We need to approach solutions to Eskom via complex theory – understand the complexity of the institution we’re dealing with, to come up with complex solutions.”

The Bill passed with 200 votes in favour and 105 against. There were no abstentions.

Article by EWN

Sars is set to be R215 billion short by the end of this tax year – here are six ways that will make you poorer

Tax revenue for the first 5 months of the tax year is running significantly behind target.

Experts are now forecasting a record shortfall for the tax year ending March 2020 – of as much as R60 billion.

That will bring the accumulated tax undershot over the last 6 tax years to over R215 billion.

That gap has to be plugged, and that is going to inflict collateral damage on consumers.

A widening tax shortfall is going to blow another hole in state finances – and ultimately leave ordinary people poorer.

Every tax year since April 2014, Sars has fallen short of the tax collection target set by National Treasury in the prior year’s Budget Speech.

Experts are now forecasting a record shortfall for the tax year ending March 2020 of as much as R60 billion, bringing the accumulated tax miss over the past 6 years to over R215 billion.

Figures from the National Treasury released at the end of September show that Sars collected 3.1% more tax during the first 5 months of the tax year compared to the same period in 2018.

However, to meet finance minister Tito Mboweni’s February Budget Speech target for the full tax year of R1.422 trillion requires 10.4% more in tax, which means Sars is 7.3 percentage points off the pace.

Here are six ways Sars’ failure to collect enough tax is likely to make you poorer: 

You can expect more tax, soon.
The government deficit has to be plugged sooner or later.

The taxes that will be most likely be increased to do that will be personal income tax and valued added tax (VAT), Adrian Saville, Cannon Asset Managers CEO and a professor of economics at the Gordon Institute of Business Science, told Business Insider South Africa – not the corporate taxes that affect consumers less directly.

Government debt will cost you, eventually.
To plug the shortfall in tax revenue in the meanwhile, Mboweni is adding to government debt.

That expanding government debt has seen steadily increasing state bond yields to compensate investors for the worsening creditworthiness, says Glynos George, ETM Analytics managing director and chief economist.

The cost of servicing debt has been the top growing state expense for many years.

Eventually something has to give, and that something will be consumers one way or the other, most likely through more tax hikes.

Interest rates will rise if SA’s credit rating drops any farther.
The worsening creditworthiness of the government, with tax shortfalls at its heart, risks further rating downgrades. That would immediately push up the cost of debt – and would quickly require an increase in interest rates, rising the price of everything from credit card debt to home loans.

Fuel, food, and imported consumer goods will become more expensive.
The worsening state of government finances will make the rand vulnerable, and a weaker rand can have a dramatic impact on the cost of fuel and food, among other items dependent on imports or global prices.

A weaker rand will increase the price of maize, which will have an impact on the price of numerous foodstuffs from mielie meal to meat. South Africa is a major importer of wheat, so a weaker rand will also increase bread prices.

Other products that would be hit include chocolate, cell phones – and foreign holidays too, for those who can still afford them.

Electricity prices will go even higher.
Eskom has been burning billions of rands in imported diesel to try and avoid load shedding.

At the end of July, Eskom reported that the group and independent power producers had spent R6.5 billion on diesel-generated power in the year ended March.

That doesn’t get cheaper when the rand weakens, and ultimately Eskom recovers that money from consumers.

There will be even fewer jobs.
Whatever mechanism is used to plug the revenue shortfall will hit consumer confidence and business confidence, both of which are at the heart of economic growth. Nobody wants to invest when things are getting worse.

The impact of even lower growth will not be a decrease in the already sky-high unemployment – not as companies cut costs and consumers hit by higher taxes and other costs hang on to their money more tightly.

Article by Business Insider

Government hints at plans for pension funds and prescribed assets to help boost South Africa’s economy

Growing the economy will require the increase of both foreign and domestic financial capital, says deputy finance minister David Masondo.

Speaking at a recent private investors conference, Masondo said that while government was working to attract overseas investment, there is also ‘enormous power’ in the size of long-term fund managers, such as pension funds.

“At this point, let me be clear about our views. Firstly, from a Finance Ministry perspective, the savings of workers must be protected. In this regard, they should never be exposed to risks emanating from poor financial management in either the public or the private sector,” he said.

“Second, the onus must be on economic actors to ensure that the value proposition of the investment is sound. Government can never compel asset managers to invest their clients’ money in unsound or poor-return projects.

“But let us not forget that the size of long-term fund managers such as pension funds alone is a source of enormous power and influence in driving economic growth and reform.”

Masondo said that these types of funds have the ability to secure longer-term returns by insisting on high standards of delivery, governance, and social responsibility.

“We need to ask ourselves that: what prevents the full potential of these instruments from being unleashed on the economic potential before us?” he said.

Pensions

In August, President Cyril Ramaphosa said that South Africa should investigate using worker pensions to finance development and infrastructure projects.

“We need to discuss this matter (prescribed assets) and we need to discuss it with a view to actually saying what is it we can do to utilise the various resources in our country to generate growth in a purposeful manner,” Ramaphosa said.

The ANC has also previously floated the idea of using pensions to help fund embattled state-owned enterprises.

The DA’s Natasha Mazzone has said that the use of prescribed assets would cause incredible damage to the savings of millions of South Africans, and is unlikely to help the country’s state-owned enterprises to recover from debt.

“South Africa has hundreds of SOEs, many of them are either completely dysfunctional, bankrupt, or frankly serve no purpose other than lining the pockets of the connected few,” she said.

The DA’s Geordin Hill-Lewis added that the proposal was equivalent to theft.

“This government is proposing to steal pensions of hardworking South Africans to pay for their mismanagement,” he said.

Article by Business Tech

Eskom to get R59bn, but T&Cs are onerous

A Special Appropriation Bill was recently tabled in Parliament to provide Eskom with much-needed finance over the next two years. If approved, it will see the troubled utility get R26 Billion in the 2019/20 financial year and R33 Billion in the following.

This is not, however, a blank cheque.

National Treasury, in consultation with the Department of Public Enterprises (DPE) have released these conditions, which are not only onerous, but some may be near-on impossible to implement.

Eskom’s responsibilities

Provide daily updated liquidity positions, including underlying income, operational expenditure, working capital, capital expenditure and financing cash flows.
Submit and present monthly management reports (signed off by the group CEO). Reports to include IFRS standard profit and loss, cash flow and balance sheet update, including commentary addressing all deviations from the annual budget that individually exceed R100 Million during the month (for each division such as generation, transmission and distribution, as well as at group level).
Submit a quarterly board-approved schedule of redemptions and interest payments for the full duration of loan agreements within a week after the enactment of the bill.
Use the additional finance only to settle debt and interest payments.
Submit a monthly report on the amount and actions underway to recover all and any sums outstanding for electricity sales.
Provide monthly updates on the status of actions being taken to dispose of Eskom Finance Company. The target disposal date is prior to March 31, 2020.
Provide a justification for the continued use of the Eskom Insurance Captive for risk written outside the Eskom group, and an independent valuation of the insurance captive by December 31, 2019.
Submit a plan to manage the cash of the business within its available resources. Not more than a month from the enactment of the bill.
Submit a monthly report on the initiatives being implemented to reduce the primary energy costs.
Provide a detailed cost, timing and benefit plan for completion of Kusile and Medupi. Not more than a month from the enactment of the bill.
Provide a monthly statement of expected capex spend. Provide a report on the defects on the build programme and how they will be fixed by not more than a month from the enactment of the bill, and quarterly thereafter.
Provide monthly reports on the measures being implemented to improve the Energy Availability Factor (to 80%).
Provide a report on the initiatives being implemented to address the irregular expenditure not more than a month from the enactment of the bill and thereafter quarterly.
Submit a report on the measures that have been implemented to deal with all the individuals implicated in the irregular, fruitless and wasteful expenditure in regard to 2018/9, to be updated quarterly.
Produce separate financials for generation, distribution and transmission for March 2020.
Provide monthly updates on the progress of the restructuring of the business.

DPE’s responsibilities

Ensure that that board is strengthened by December 31, 2019.
Ensure (through the board), that Eskom’s executive management performance agreements are linked to the deliverables as contained in the shareholder compact and the conditions as set out by the Minister of Finance by December 31, 2019.
Publish a special paper on Eskom restructuring roadmap. Not more than a month from the enactment of the bill.
Provide quarterly reports to Parliament (Standing Committee on Appropriation and Select Standing Committee on Appropriation) on adherence to conditions.
Ensure appointment of the permanent group CEO. Not more than a month from the enactment of the bill.
Approve, with National Treasury, the capital plans.
No incentive bonuses will be paid to executives in the years where equity support is provided.
Treasury shoots own goal

In its eagerness to get the ball rolling on fixing Eskom, National Treasury has shot too far, and has lost sight of the ball.

Producing monthly management accounts compliant with IFRS is, quite frankly, nonsensical. Management accounts are drawn up on a different basis to IFRS financial statements, and IFRS adjustments are made annually (for example, mark to market, capitalised interest, etc.) An IFRS statement of profit and loss does not contain the details that management would require. Why not do as other CEO/CFOs do, and study the cash flow statement and schedule of loan commitments on a monthly basis, and study the management accounts on a quarterly basis? Oh, wait …

Eskom’s financial woes are not due to inadequate financial management.

To name just a few problems: state capture, bloated inefficient labour force, procurement problems, coal transport, quality of coal, coal contracts, badly maintained plant, and all sorts of problems in completing Medupi and Kusile.

Introducing some cash management and financial planning into Eskom is ideal, but overkill is not.

Article by Money Web

World Bank cuts South Africa’s growth forecast

The World Bank has cut its economic growth forecast for South Africa for 2019, through to 2021, citing low investor sentiment, and persisting policy uncertainty.

Growth in South Africa is now expected at 0.8% in 2019 (0.5 percentage point lower than the April forecast), the same as in 2018, the bank said in its October Africa’s Pulse report.

Growth is expected to rise to 1.0% in 2020 (0.7 percentage point lower than in April) and reach 1.3% in 2021 (0.5 percentage point lower than the April forecast).

“These large downward revisions reflect the sharp slowdown in real GDP growth in the first quarter of 2019, low investor sentiment, and persisting policy uncertainty, including whether a solution could be found for Eskom, fiscal slippages would be averted, and structural reforms would be undertaken,” it said.

Appetite for South African equities has been hurt by concerns about global growth, the prolonged trade war and a moribund local economy, Bloomberg reported. A forthcoming credit-rating review by Moody’s Investors Service, in November, has added to caution among non-resident investors.

Renaissance Capital, which has correctly predicted eight out of nine sovereign rating decisions in emerging Europe and the Middle East since May, is calling a downgrade to junk for South Africa next month.

Moody’s is the only major rating company still to assess South Africa’s debt at investment grade. S&P Global Ratings and Fitch Ratings cut their assessments to junk in 2017. Moody’s has South Africa on a stable outlook, meaning it’s unlikely to change the rating immediately.

Eskom continues to drag on the economy with debt exceeding R440 billion, while the power utility reported a loss for the year ended March 2019, of R21 billion.

Foreigners meanwhile, have offloaded South African stocks in recent weeks, as worries about the state of the global economy helped spur an exit from riskier assets.

The World Bank on Wednesday said that growth in Sub-Saharan Africa remained slow through 2019, hampered by persistent uncertainty in the global economy and the slow pace of domestic reforms.

The bank’s twice-yearly economic update for the region, suggested that overall growth in the region is projected to rise to 2.6% in 2019 from 2.5% in 2018, which is 0.2 percentage points lower than the April forecast.

Beyond Sub-Saharan Africa’s regional averages, the picture is mixed.

The recovery in Nigeria, South Africa, and Angola—the region’s three largest economies—has remained weak and is weighing on the region’s prospects. In Nigeria, growth in the non-oil sector has been sluggish, while in Angola the oil sector remained weak.

“In South Africa, low investment sentiment is weighing on economic activity,” the bank said.

Excluding Nigeria, South Africa, and Angola, growth in the rest of the subcontinent is expected to remain robust although slower in some countries.

“The average growth among non-resource-intensive countries is projected to edge down, reflecting the effects of tropical cyclones in Mozambique and Zimbabwe, political uncertainty in Sudan, weaker agricultural exports in Kenya, and fiscal consolidation in Senegal.

“Africa’s economies are not immune to what is happening in the rest of the world, and this is reflected in the subdued growth rates across the region,” said Albert Zeufack, chief economist for Africa at the World Bank.

“At the same time, evidence clearly links poor governance to poor growth performance, so efficient and transparent institutions should be on the priority list for African policy makers and citizens.”

The rand firmed against the dollar in afternoon trade on Wednesday:

Dollar/Rand: R15.17 (-0.69%)
Pound/Rand: R18.55 (-0.68%)
Euro/Rand: R16.66 (-0.45%)

Article by Business Tech

Eskom challenges latest power tariff decision in court

JOHANNESBURG – South Africa’s struggling power utility Eskom said on Friday it was challenging in court the regulator’s latest tariff decision, a move it said was necessary to avert financial disaster.

State-owned Eskom, which produces more than 90% of the country’s electricity, implemented some of most severe power cuts in several years this year and is reliant on government bailouts to survive.

In March, regulator Nersa granted Eskom tariff increases of 9.4%, 8.1% and 5.2% over the next three years, far below what the utility had sought. At the time Eskom said the tariff awards left it with a projected revenue shortfall of around 100 billion rand ($6.7 billion).

Eskom said in a statement on Friday its board of directors had decided to challenge the tariff awards after reviewing the reasons for Nersa’s decision.

“We have put in an application for urgent interim relief, which is necessary to avoid financial disaster for Eskom. We are seeking an order to address this shortfall in a phased manner,” Eskom Chief Financial Officer Calib Cassim was quoted as saying.

In arriving at its decision, Nersa had offset a 23 billion rand a year bailout granted by government against Eskom’s allowable return on assets, Eskom said, arguing that approach ran counter to Nersa’s own methodology and defeated the whole point of the bailout.

Eskom’s finances are hobbled by its massive 450 billion rand debt burden, racked up partly to pay for two mammoth coal-fired power stations, Medupi and Kusile. But Eskom also argues its financial position has been severely damaged by years of low tariff awards which have not allowed it to recover its costs.

Article by IOL

SA spends R42m to fly undocumented migrants home in just over a year – Parliament hears

Home Affairs Minister Dr Aaron Motsoaledi confirmed that R8 956 713.41 has been spent on charter flights and/or airlines by his department to deport undocumented migrants for the period April 1 to August 31 this year.

The minister made the revelations in a parliamentary reply to a question asked by DA MP Joseph McGluwa.

McGluwa asked Motsoaledi about the details of the charter flights and airlines as well as the total amount paid in respect of the deportations in both the 2018/19 financial year and since the start of April this year.

For the 2018 to 2019 financial year, R33 070 629.90 was spent on flights for the deportation of undocumented migrants.

On October 3, President Cyril Ramaphosa hosted Nigerian President Muhammadu Buhari for an official state visit, which followed a number of violent attacks against foreign nationals in parts of the country last month.

At least 12 people were killed and hundreds of Nigerians were repatriated.

In a newsletter published on Monday morning, Ramaphosa said: “The recent public violence targeting foreign nationals has challenged our efforts to build stronger ties with other African countries. Fuelled by misinformation spread on social media, these attacks provoked much anger in different parts of the continent leading to threats against South African businesses and diplomatic missions.”

ANC secretary-general Ace Magashule, speaking on behalf of the party, said at the time of the incidents of public violence that while migration was a global phenomenon, action should be taken against undocumented foreigners and those who committed crime in South Africa should be deported, News24 reported.

“We must deal with undocumented foreigners. They must be documented and those who continue doing acts of crime, things not meant to be done in a country they don’t belong to, must actually be dealt with,” added Magashule.

DA MP Adrian Roos asked Motsoaledi whether he would engage with the executive mayors of metropolitan municipalities to conduct raids to combat illegal immigration.

To this, the minister replied that he “… has engaged with municipal structures on matters of migration and will do so on a continuous basis”.

“Joint and special operations to combat illegal migration are planned and conducted by law enforcement agencies at national, provincial and local level through inter-governmental security structures. All metro municipalities are represented in local security, provincial and national structures such as the provincial joint operational structures and the national structure,” Motsoaledi added.

Article by News 24

How Medupi and Kusile are sinking South Africa

South Africa’s economy was roaring along in 2007 on the back of the global commodities boom when power shortages struck, bringing mines and smelters to a halt.

Then-President Thabo Mbeki publicly apologised for prevaricating about adding generation capacity despite repeated warnings that supply was constrained, and state power utility Eskom swiftly opened the spending taps.

The botched implementation of the expansion plan has haunted the country ever since.

Eskom in 2007 alone approved 13 projects worth more than R200 billion that it said would boost electricity output 56% by 2017. The flagships were two mammoth coal-fired power stations, Medupi and Project Bravo, that were both expected to be finished by 2015 at a total cost of R163.2 billion.

Instead of resolving the energy shortfall in Africa’s most industrialized nation, the plants have been textbook studies on how not to execute large infrastructure projects. Medupi’s completion date has been pushed out until next year or 2021 and Kusile, as Bravo is now called, is scheduled for 2023. The delays have given South Africa months of rolling blackouts, an economy in deep trouble and a huge headache for its president, Cyril Ramaphosa.

While Eskom’s current management and Ramaphosa’s government have sought to come to grips with the problems at Medupi and Kusile, there’s no guarantee the plants will ever perform optimally.

Ballooning price tag

“They needed to basically call a halt to the whole project and do a reset—to go back into the contracts and the design and engineering,” said Mike Rossouw, who was appointed as an independent consultant to Eskom in 2014 and advised it on how to address its construction challenges. “They never did that and haven’t at any stage and the consequences are there for all to see.”

Meanwhile, the anticipated price tag has ballooned to R451 billion, including the costs of interest during construction and fitting the plants with equipment needed to meet environmental standards. That equates to Eskom’s entire current debt, a burden that’s left it unsustainable and reliant on a three-year, R128-billion government bailout to remain solvent.

The utility now concedes multiple failings that led to cost overruns and delays, including inadequate planning and front-end engineering development, plus ineffective contracting strategy, execution and oversight. Contractors also performed poorly and incurred limited penalties, while strikes and demonstrations compounded the implementation woes. Turnover at the top—the company has had 11 permanent and acting chief executives since construction began—didn’t help.

Steve Lennon, Eskom’s former group executive for sustainability, recalled how Medupi’s construction went awry when the utility was ordered to fast-track the process.

“The project was under development and implementation at the same time, which is clearly a recipe for disaster in terms of any good practice for major project execution,” he said by email. “There was a shortage of contractor capacity given the worldwide demand for large-scale generation plant at the time. That meant that the main contractors could virtually name their price and conditions.”

Eskom also assumed much of the risk of developing Medupi and Kusile when it decided to coordinate the projects, rather than appointing an outsider to oversee engineering, procurement and construction—a common practice in plant development.

“The South African market at the time was not ready for a single contractor to handle the onerous risk of executing a project of this complexity and magnitude,” Eskom said in an emailed reply to questions. The company also wanted to develop skills and create jobs by bringing in small and medium-sized contractors, it said.

Medupi and Kusile, expected to be among the world’s biggest coal-fired stations, share the same configuration. The latter’s two towering smokestacks and six enormous boilers are visible from the main highway that runs between Johannesburg and the east coast.

Claims against Eskom

Speculation that the plants could be delayed first surfaced in 2008. While Eskom initially denied that the projects had gone off track, it was forced two years later to adjust the time lines and anticipated price.

Eskom Rotek Industries, a wholly owned Eskom subsidiary, was appointed to establish the Kusile site—a process that entailed digging drains, laying pipes and doing the earthworks and terracing. Its contract was terminated early on because it was unable to deliver. That created a bottleneck for other contractors, which filed for damages.

Eskom said it has paid out R14.8 billion to settle the claims, which totaled R252.9 billion, and it filed claims of its own worth R2.6 billion against companies that failed to meet their contracts.

The delays and design changes reverberated throughout the programme. While the manufacture of equipment continued as planned, it was left sitting in warehouses or on site with the clock ticking on warranties, according to Makgopa Tshehla, a professor at the University of South Africa and an expert on large construction project management.

Broken boilers

The biggest construction headaches were caused by the installation of deficient boilers supplied by Mitsubishi Hitachi Power Systems Africa, according to Eskom. Talks on how to resolve the problems are ongoing, according to Jan Oberholzer, the utility’s chief operating officer.

Mitsubishi Hitachi didn’t respond to questions about the defaults or the discussion of plans. In 2014, Hitachi Power Africa, an earlier iteration of the company, blamed local subcontractors for faulty welds on the Medupi boilers, but Eskom’s former finance director, Paul O’Flaherty, said the main contractors were at fault.

Tshehla says Eskom’s board should ultimately bear most of the blame for failing to properly assess the projects and the related risks, and for not holding management accountable for poor performance.

Oversight deficiencies were compounded by the repeated changes to Eskom’s top management and demands by politicians for them to get a move-on with the projects.

“Eskom was already under the whip for lack of capacity so they were chasing like mad dogs to get those power plants done,” Rossouw said. The management “took on responsibility and risk which I don’t think the board ever understood properly. They were hardly capable of conveying a concise, understandable picture to the board.”

In 2012 Eskom invited then-President Jacob Zuma to attend a pressure test on Medupi’s first boiler to show that the project was running according to plan. Rossouw recounted that management ignored engineers’ advice that the plant wasn’t ready and, when steam was pumped into pipes connected to the boilers, tools and other debris were blown out.

Zuma gave no indication that he was aware anything was wrong. He said in a prepared speech that he was “delighted” with the progress being made on the project and congratulated his minister, Eskom and its workers “for a job well done.” Zuma returned to the plant in 2015 when it delivered its first power to the grid—two years later than anticipated at the time of his previous visit.

Article by Fin 24

South Africa’s big expat tax is coming – and financial emigration isn’t the quick fix you think it is

While financial emigration may be a viable option for a small minority of individuals who will be hit by South Africa’s coming ‘expat tax’, for the majority, it’s likely to be a costly exercise which won’t provide significant tax relief in the long-term.

This is according to Ettiene Retief of the South African Institute of Professional Accountants (SAIPA) who said that recent news reports have provided conflicting – and even wholly inaccurate – information around the implications for expats to the scheduled March 2020 change to the Income Tax Act.

“Financial emigration is the process whereby taxpayers change their status with the South African Reserve Bank (SARB) from resident to non-resident,” he said.

“It’s a process conducted purely for exchange control purposes, but which does not affect your citizenship status in any way.”

Emigration, on the other hand, is a very different process as it involves physically relocating from one country to another country either in the short or long term, said Retief.

Once emigration has become a permanent status, the process of financially emigrating – during which time the individual’s assets move from their old country of residence to their new country of residence – takes place, he said.

“The mistake many people are currently making is that they are expecting financial emigration to resolve their issues around paying tax in South Africa on income earned abroad, a so-called ‘expat tax’.

“The reality, however, is that financial emigration, for most individuals, won’t provide material tax savings,” he said.

Expat tax

Once the amendments to the Income Tax Act come into effect in March 2020, South African tax residents working abroad will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter they will be required to pay tax on any foreign earnings.

The revised act does, however, make provision for expats working abroad who are registered for tax in those countries, said Retief.

In these instances, the act allows those individuals to apply for credits in South Africa which are offset against the tax they owe locally, with the tax rate starting at the lowest rate, he said.

“The reality, therefore, is that South Africans working abroad will in most instances not be significantly negatively impacted by the changed regulations and will still not be double taxed.

“The only individuals that will be detrimentally impacted are those earning very large amounts offshore and even in these instances, they will still only be paying the same amount of tax they would have been paying in South Africa in any event.”

What’s important to understand is that to all intents and purposes the law has not changed but has instead just corrected a loophole, said Retief.

“South African residents who work abroad permanently and spend the majority of their time living abroad would already be considered non-residents from a tax perspective. Remember that it is possible to change your tax residency without having to financially emigrate.”

Downsides

What recent news reports – those encouraging individuals to emigrate financially in order to avoid the expat tax – have failed to reveal is that financial emigration is an expensive exercise, said Retief.

He added that there is a huge tax implication involved in changing an individual’s tax residency.

“By financially emigrating an individual is deemed to have disposed of all their assets in South Africa, which means that capital gains tax starts applying. Should the individual decide at some future point to financially emigrate back to South Africa, the individual would not get that money back.

“To avoid South African taxation rules, an individual would need to first change their tax residency. Financial emigration is the very last step – and even then, it’s not an essential part of an amended tax residency given that it is only an exchange control provision.

“Emigration and financial emigration only comfortably overlap when a taxpayer is legitimately emigrating. The latter doesn’t work if the individual intends to continue residing in South Africa,” he said.

Article by Business Tech

Ramaphosa signs controversial new law – here’s what you need to know

President Cyril Ramaphosa has signed off a number of major new laws – including the controversial ‘internet censorship bill’.

In a statement on Wednesday (2 October), the presidency said that the new laws include:

  • Overvaal Resorts Limited Repeal Bill;
  • The Property Practitioners Bill;
  • Electronic Deeds Registration Systems Bill;
  • Film and Publications Amendment Bill.

It was not clear at the time of writing whether the laws had been promulgated and had officially come into effect. In addition, some parts of the legislation may only come into effect at a later date.

Controversy

While most of the new laws will likely be welcomed, one of the new bills has courted controversy as it made its way through the law-making process.

The Film and Publications Amendment Bill – known as the ‘internet censorship bill’ by some of its opponents – aims to introduce a number of changes including harsher rules to protect children from disturbing and harmful content, and to regulate the online distribution of content such as films and games.

Some of the other notable changes include:

  • Revenge porn: Under the bill, any person who knowingly distributes private sexual photographs and films without prior consent and with intention to cause the said individual harm shall be guilty of an offence and liable upon conviction. This includes a possible fine not exceeding R150,000 or to imprisonment for a period not exceeding two years and/or to both a fine and imprisonment not exceeding two years. Where the individual is identified or identifiable in said photographs and films, this punishment rises to a R300,000 fine and/or imprisonment not exceeding four years;
  • Hate speech: The bill states that any person who knowingly distributes in any medium, including the internet and social media any film, game or publication which amounts to propaganda for war, incites imminent violence, or advocates hate speech, shall be guilty of an offence. This includes a possible fine not exceeding R150,000 and/or imprisonment for a period not exceeding two years;
  • ISP requirements: If an internet access provider has knowledge that its services are being used for the hosting or distribution of child pornography, propaganda for war, incitement of imminent violence or advocating hatred based on an identifiable group characteristic it shall immediately remove this content, or be subject to a fine.

Some of the above changes have previously come under scrutiny from members of industry and the public, over concerns that it would be used as a means of censorship for online content.

Speaking to BusinessTech in May 2019, Dominic Cull of specialised legal advice firm, Ellipsis, said that the bill is ‘extremely badly written’.

He added that the introduction of the bill means that there is definite potential for abuse in terms of infringement of free speech.

“One of my big objections here is that if I upload something which someone else finds objectionable, and they think it hate speech, they will be able to complain to the FPB,” he said.

“If the FPB thinks the complaint is valid, they can then lodge a takedown notice to have this material removed. ”

Cull said this was problematic as the FPB, which is appointed by government, should not be making decisions as to what is and isn’t allowed speech under the South African Constitution.

“When we can see that the courts struggle with these issues, there’s no place for politicians directly appointed by a minister to deal with them,” he said.

Article by Business Tech