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Rands and Sense
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Budget Day 2017
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Achieving
Unpacking
Innovate,
An impossible balance
The 2017 Budget
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Sasfin Securities (PTY) Limited
Reg No. 1996/005886/07 · [email protected]
An Authorised Financial Services Provider 23833,
Registered Credit Provider NCRCP22
and a Member of the Sasfin Group
Contents
04
14
06
By: Bradley Mitchell, Mike Haworth
and Alec Abraham
Contributors
Making rands and
sense of the
world we live in
By: Michael Sassoon
09
Building a
sustainable future
By: Dr Anna Mokgokong
10
Unpacking the
2017 budget
By: Liston Meintjes
12
Get it right the
first time
By: Bernard Du Plessis and Peter Dachs
Achieving an
impossible
balance
21
Should you be
investing locally
By: Philip Bradford
22
Disclosing
undeclared
foreign assets
in offshore
trusts
By: Hannelie La Grange
24
Don’t stagnate
innovate
By: David Shapiro
26
Glossary
04
Michael Sassoon
Michael Sassoon is the Head of Wealth and Capital at Sasin. Since his appointment as
Head of Wealth, Sasfin Wealth has grown assets under management and advisement
from R70 billion to over R108 billion. In addition to fulfilling his executive duties, Michael
is operationally involved in the growth and strategic direction of the Transactional
Banking division. Michael holds an MBA with a special interest in finance from the
Simon Graduate School of Business at the University of Rochester, New York.
Contributors
Liston Meintjes
Liston has a strong technical and professional background in investment management
and over 37 years’ industry experience. After qualifying as an actuary, Liston began
his career in the investments division at the Old Mutual after which he co-founded
Foord & Meintjes (now Foord Asset Management). Liston is based in New Zealand.
Mike Haworth
Bradley Mitchell
Bradley is responsible for managing the investment research team at Sasfin Wealth,
which is focused on creating global equity model portfolios and providing global
macroeconomic views for divisions in Sasfin Wealth. The investment research team
Mike is Sasfin Wealth’s Investment Strategist. An industry veteran, Mike began his
journey in investment research at UAL Merchant Bank in 1985. From 2000 to late
2008 he was Head of Investment Strategy at Nedcor Securities and has since been
consulting on investment strategy process and systems to a number of stockbroking
and asset management houses.
combines external and internal company specific fundamental research, for companies
across all sectors and regions, with their global macro investment framework, to create
and manage domestic and global equity model portfolios.
Hannelie La Grange
Dr Anna Mokgokong
Hannelie la Grange is an associate in ENSafrica’s tax department. She specialises in
employees’ tax and income tax for individuals and trusts, as well as international tax
aspects. Her experience includes assisting South African and multinational clients in
the establishment and ongoing management of their South African and offshore trusts.
Born in Soweto and raised in Swaziland, Anna Mokgokong has received international
acclaim for her entrepreneurial ability. As former President of the South African Women
Entrepreneurs Network (SAWEN) and the International Women’s Forum of South Africa
(IWFSA), Anna is a much sought-after public speaker with a keen interest in community
development and women empowerment.
Philip Bradford
Alec Abraham
Philip is the Head of Investment Management at Sasfin Wealth and manages
Sasfin’s asset allocation and fixed income funds. He is also a member of the FTSE/
JSE Index Advisory Committee and the President of the CFA Society South Africa.
Philip is responsible for managing various asset allocation, fixed income and equity
portfolios for Sasfin’s institutional and retail clients.
Alec is a Senior Equity Analyst at Sasfin Wealth. He has been involved in research across a
broad range of industries for over 15 years, initially at the international debt rating agency,
Fitch Ratings and then as an equity analyst at SG Securities, a division of Societe Generale,
where he was recognised in a number of financial surveys, primarily for his work in the
Healthcare sector. Alec is responsible for company specific fundamental analyses, with
a specific focus on driving the creation and management of Sasfin’s company specific
investment views for all companies being considered in the equity model portfolios.
Bernard Du Plessis
Bernard du Plessis is an executive and joint head of ENSafrica’s tax department.
He is a chartered accountant and specialises in advising on international mergers
and acquisitions, international fund structuring, private equity, and corporate and
project finance transactions.
David Shapiro
David Shapiro joined Max Pollak and Freemantle, a member of the Johannesburg Stock
Exchange (JSE) in 1972, shortly after qualifying as a Chartered Accountant. He was
appointed senior partner in 1988 and served on the committee of the JSE from 1986 to
1992. In addition to managing private client money and serving as Deputy Chairman,
he manages the Sasfin MET Equity Fund. David Shapiro has been a stockbroker and
investment expert for over 44 years.
Peter Dachs
Peter Dachs is a director and joint head of ENSafrica’s tax department. He
specialises in financial services, mergers and acquisitions, and international tax,
and advises South African corporates and financial institutions on their domestic
tax issues.
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ENSafrica.com
recommended firm
Making
rands
&sense
of the
world
we live
in.
W
We are truly living in remarkable times. The US
markets are continuing to breach record levels,
but, in the context of the sluggish global economy,
South Africa is under sustained pressure to keep inflation in
check, ensure economic growth is achieved and unemployment
reduced. To quote Sasfin Wealth’s Investment Strategist, Mike
Haworth, 2017 will be a year characterised by geopolitical,
economic and technological disruption both globally and
domestically. The election of Donald Trump as US president,
together with the Brexit, were arguably two of the most significant
geopolitical events of the 21st century – and both occurred last
year.
2016 was unnerving for so many reasons. The world has been
dramatically shifted from its comfort zone – the aftershocks of the
major global events of 2016 are still to be seen. Trying to make
sense of 2016 is not easy and perhaps the biggest question
of all is how did so many people manage to incorrectly predict
the election of Trump and Brexit? The complete shock at the
outcome of the two biggest events of the last twelve months
(I’m not referring to Leicester City’s 5000-1 premier league title
victory or La La Land being the first musical to dominate the
Oscars in decades) still reverberates.
The echo chamber effect
Over the last few months, much has been said and written about
alternate facts, the “post-truth” world and echo chambers. To
understand how people got their predictions so wrong, one needs
to reflect on the power and dangers of echo chambers. The people
we connect to, the articles we read, the websites we visit and the
posts we share all reaffirm our position. Those in the know happen
to largely be part of this same echo chamber. They believed this
echo chamber was reflective of the world. They assumed the
majority of people thought like them. They were wrong and their
core has now been shaken.
In an echo chamber there is a lot of noise, most of which is just
the repetition of one’s own voice. To make sense of what is really
happening - which in the end is so critical to how one positions
his life and his money - it is crucial to leave the echo chamber. To
listen to the other side. One needs to move away from just hearing
lots of similar repetitive noise to actually being willing to listen to
alternative voices. Only then can one start making genuine sense
of what is happening.
To understand how people got
their predictions so wrong, one
needs to reflect on the power
and dangers of echo chambers.
The people we connect to, the
articles we read, the websites
we visit and the posts we share
all reaffirm our position
Against this backdrop, we have chosen to theme this year’s
budget day event ‘making rands and sense of the budget.’ The
Finance Minister has to unpack a notoriously complex subject,
fraught with terms such as expenditure ceiling, excise duties,
fiscal consolidation and public debt levels. The implications are
far-reaching for us as individual tax-payers, and in certain cases,
as representatives or directors of corporates and trusts. Our goal
therefore, with this publication, is to simplify the task – cut through
the jargon, and ensure that the readers reach a degree of clarity
on what the 2017 budget means for them.
07 Rands and sense
Going Global
In a similar vein - global investing – a core focus area for Sasfin Wealth, is
just as challenging to unpack. As Wealth managers, Sasfin’s key objective is
to take on a level of custodianship for our clients and their wealth. Investing
is more arduous than ever before – clients don’t necessarily understand
the nuances of exchange controls, choosing a trading platform or even the
implications of offshore investing in general. Our duty is foremost to manage
our clients’ money, but at the same time we want to empower our clients and
ensure they understand exactly how and why they are investing in a particular
asset class, through a particular platform.
Constructing a sophisticated global balanced portfolio is critical to achieving
long-term capital preservation. South African investors are now more easily
able to invest across many global exchanges, which enables us to build
solutions for our clients that are more diversified than if we were only able to
select companies on the South African exchange.
As Wealth managers, Sasfin’s key objective
is to take on a level of custodianship for
our clients and their wealth. Investing is
more arduous than ever before – clients
don’t necessarily understand the nuances
of exchange controls, choosing a trading
platform or even the implications of offshore
investing in general.
Where to from here in 2017
Today, more than ever, our clients are thinking globally about their lives.
Sending children to offshore universities, opening up businesses offshore, or
acquiring subsidiaries offshore are becoming part and parcel of the lives of
many individuals. This is not just a South African phenomenon but a global
one. Notwithstanding President Trump’s protectionist agenda, the world is
more global than ever. This is reflected in the changing make-up of the JSE
and the technology we use on a day to day basis.
This new reality has major ramifications on how one manages his wealth. There
are some key questions to ask:
•
•
•
•
•
What is your base currency?
How do your assets match your future liabilities and income requirements
assuming these are more global in nature?
What are the chances that you or your dependents will want to either
move abroad or spend more time abroad?
What exposure do you have to South Africa in general
(include your illiquid assets in this such as your house and business)?
Do you have money to invest beyond savings to enable your current
lifestyle?
For most of our clients this line of questioning results in a need for much
greater offshore exposure. Despite some rand strength over the last twelve
months or so, this approach, particularly over the long-term, has yielded
significant value to our clients over the last few years, especially as they view
their wealth today more and more in dollar terms.
Ultimately, we must view our lives, our wealth, and our future in global terms.
During times of heightened volatility diversification becomes even more
critical and is therefore especially crucial given the present economic climate,
particularly given the ability for South Africans to invest globally, which
provides far more opportunities in higher growth environments than ever
before.
By: Michael Sassoon, Head of Wealth and Capital
09 Rands and sense
Build(ing)
A sustainable future
C
ommunity Investment Holdings (CIH)
is a 100% black owned, women led
company with an investment portfolio
in excess of R20 billion, diversified between
healthcare, ICT, power & energy, logistics,
mining and infrastructure development.
Some of its premium investments includes
Afrocentric limited (Medscheme), Temo
Coal, Jasco Electronics Holdings, Tamasa
Investment Holdings as well as property
development interests.
CIH last year celebrated its 20th anniversary.
Our organisation is proud of this achievement,
but is already planning for the next 20
years of sustainable growth, despite both
world and regional economic instabilities.
Growth opportunities are available for those
organisations that are committed to meeting
customer requirements, service excellence
and the ability to understand their markets
and evolve innovatively.
Growth opportunities are
available for those organisations
that are committed to meeting
customer requirements, service
excellence and the ability to
understand their markets and
evolve innovatively.
Develop Entrepreneurs,
Develop An Economy
Part of our business philosophy has always
been to view ourselves as emerging from,
and giving back to the community through
all of its subsidiaries that participate in
community projects through robust CSI
projects. This emanates from our mission of
making a tangible difference to South Africa.
The company is committed to this ideal in a
sustainable manner.
CIH is well placed to cement government’s
strategy regarding the support of “Black
Industrialists”, and at the same time
dispelling the negative narrative regarding
B-BBEE. The amended Preferential
Procurement Policy Framework Act (PPPFA)
has created more impetus in government
to support black entrepreneurs as well
as transforming the economy in the way
that participation is broadened in support
of black Small Micro Medium Enterprise
(SMMEs).
The new B-BBEE codes will not only assist in
developing SMMEs
but will also encourage entrepreneurship
and industrialisation within the economy. CIH
supports these strategies through its B-BEEE
goals and Enterprise Development initiatives,
supporting the goals of the country and
creating opportunities for today’s SMMEs
who could be tomorrow’s industry leaders.
Budget 2017: Sustainable
Inclusive Growth
The world is emerging from a tough 2016,
with South Africa experiencing close to a
zero percent growth rate. Furthermore, the
country was faced with challenges such as
severe drought, inflationary pressures and
exchange rate fluctuations. The need for
improved affordable education and reliable
local services were also highlighted during
2016.
Looking forward, South Africa requires
a healthy economy, brought about by
economic growth to satisfy our social
aspirations. A positive rate of growth in
output per head in the long run implies a
sustained increase in the average standard
of living of the population. Through sustained
economic growth, our people will have the
potential to access an increased range of
goods and services, both in terms of quality
and quantity, in so doing reducing the levels
of poverty and unemployment.
By: Dr Anna Mokgokong,
Chairperson, Community Investment
Holdings (Pty) Ltd
10 Rands and sense
C
ompiling the National Budget can be tedious, especially when they are
read to the general populace and include a barrage of macro-economic
issues, socio-political issues and only finally the financial issues. In
general, most people do not follow the detail and wait to be told, the day
after, what it means – often in tables as to how much more tax they will have to pay,
from personal income taxes to sin taxes to fuel levies. Actually, while relevant, that
is also very boring.
One of the most exciting budgets in recent history
To better understand the predicament faced in putting the Budget together, it is
worthwhile to try to put yourself in the shoes of the Minister of Finance and see how
much leeway he has and how some decisions may be forced upon him. Of course,
we do not have access to the information that he has, nor the models of the National
Treasury, but we can undertake a bird’s eye view.
Remember that while we are all interested from a personal perspective, the policies
and intended actions that are announced can have a dramatic effect on the way
that markets react. In particular, we know that the ratings agencies watch the
Budget very closely. So far they have been favourable towards the way that South
African fiscal policy has been handled, singling out National Treasury as one of the
institution’ that has saved SA from junk status.
This year, Minister Gordhan will have a much easier time of it. Last year, not only
had he just been appointed but a few months before but he also had to deal with
an attack from the Hawks. A the time, the main point was to convince the ratings
agencies that SA was committed to fiscal prudence – and in a very tough time with
company tax receipts falling sharply.
Unpacking
The 2017
Budget
By: Liston Meintjes, Investment Professional
11 Rands and sense
Tax changes ahead?
Minister Gordhan still has to deal with a very lop-sided structure
to Personal Income Tax (PIT) which is the top major contributor to
the total tax take, accounting for more than 30% of the total. Of
this, it has been shown that a mere 800,000 individual tax-payers
account for 80% of that, or 24% of the total. On the other side,
governments have a duty to assist the poor, underprivileged and
those in need of care. In South Africa, the number of people
receiving a benefit is just short of 16 million. If you were the
Minister, how would you try to remedy this?
Two other bits of good luck have made this Budget easier: a
record maize harvest this year instead of one of the worst
droughts last year and a recovery in commodity prices, so that
companies that made losses or very small profits will be paying
tax. In assessing this latter impact, though, please note that
corporate taxes are only about 20% of the total.
VAT has always looked like the easy way to get extra tax revenue.
What is the difference between 14% and 15%? Probably in the
out-turn, nobody would notice, yet there is a strong reticence to
changing it: it would add to inflation, it is highly visible and most
likely to receive opposition, mainly from unions and, in any case,
word has it that the VAT increase will occur to help pay for the
National Health Insurance scheme when it is introduced.
So, looking at estimates for the revenues from the top three area’,
for PIT, unless there are changes in the tax-rate, we can pencil in
an increase of 9%, made up of salary increases and promotions.
Of interest, and a comment from Treasury, PIT has traditionally
shown what is known as tax-buoyancy (meaning that it nearly
always come out better than estimated) but not so in the current
tax year, which may impact the actual deficit against that which
was budgeted. Remember the deficit to GDP ratio is one that the
ratings agencies watch closely. The Budget was for this ratio to
be 3.2% this year and 2.8% for next year. That drop is going to be
the difficulty in this Budget.
For VAT, the estimate is usually last year plus inflation, say 7%
because some segments of the basket of goods for CPI do not
attract VAT.
The estimate for company tax must rise but just by how much? To
be prudent, lets us say 10%.
There will, for sure, be differences in increases in the estimates
for the rest (including sin taxes that usually get a disproportionate
amount of media space) but let’s say 8% overall.
3.2%
2.8%
Budget to GDP ratio
2017
Budget to GDP ratio
2018
The challenge in estimating
Expenditure
The next step is to estimate expenditure: on the one hand this
is easy because government has control over it: non-essential
projects can be shelved. The reality is, as one former Chancellor
of the Exchequer in the UK said, “It is a tug-of-war between rival
spending departments.” That is where the Medium Term Budget
Policy framework comes in. No longer is the budget an annual
event but part of a rolling three-year cycle.
Remember the deficit to GDP
ratio is one that the ratings
agencies watch closely. The
Budget was for this ratio to be
3.2% this year and 2.8% for next
year. That drop is going to be
the difficulty in this Budget.
Last year the emphasis was on maintaining capital projects that
would aid growth – remember that the ratings agencies keep
stressing that the missing ingredient in South Africa is growth. As
we all know, this has been dismal locally for a number of years
and, for many of us, doubts exist as to whether we will see some of
the previous 4%-5% years again.
If you were Pravin Gordhan, what would you be doing or saying
about this? Several times during the course of 2016, the Minister
quite openly said that it could not be achieved by government
on its own and pleaded for assistance from the private sector.
He also said that as a result of the desperation to avoid junk
status there was now the closest working relationship between
government, labour and business since the 1990s and that a
number of initiatives were already under way. No doubt he will
reiterate his plea and stand proud in the progress of the initiatives.
One major item under discussion to reconcile this year’s budget
is the funding of the State Owned Corporations (SOCs). The
ratings agencies will need this. A major change has already
taken place: a multi-party committee has been set up under the
Chairmanship of Cyril Ramaphosa to ensure proper governance of
the SOCs. This extends from the criteria for Board appointments
to the policing of funding. It may not be a new mantra but it is now
established – the Minister makes policy and the SOC implements
it. This may be late but it is welcome and it should assist the
Minister in his endeavours to keep the ratings agencies happy.
The real question facing the Minister is whether he can stick to the
deficit to GDP ratio when GDP is hardly growing and if so, can he
do it without the sale of at least one SOC? This is a political hot
potato, so watch this space.
Get It Right The
First Time
Bernard Du Plessis and Peter Dachs are executives and joint
heads of ENSafrica’s tax department.
Bernard Du Plessis executive
and joint head of ENSafrica tax
department.
T
axpayers often call on us to assist them with the South African
Revenue Service’s (SARS’) dispute process. Quite often,
this is at a fairly advanced stage, after the client and its tax
advisers have submitted objections and appeals. Getting legal
assistance at such a late stage may jeopardise the ability to salvage
the process, especially if the taxpayers or their tax advisers don’t
formulate and state their case properly.
Unpacking The Sars Dispute Process
Falling into this trap could prove costly for a taxpayer in the latter
stages of a dispute, as the grounds of objection and appeal may not
have been formulated appropriately for the case that the taxpayer
wishes to advance in court. Once the grounds of objection and
appeal have been formulated, it is extremely difficult to amend a
defence, because while existing grounds can be elaborated on,
they generally cannot be changed. For this reason, it is extremely
important that the grounds of objection and appeal are formulated
correctly the first time and that the taxpayer states its case
comprehensively.
In terms of the dispute process, SARS requests information and the
taxpayer and its advisers prepare responses, which result in a chain
of correspondence around the questions raised by SARS, information
it has requested, or contentions it has advanced in the course of
the audit or subsequent correspondence. This often leads to the
objection and eventually the appeal. The grounds of objection are
then formulated effectively as a rebuttal to SARS’ contentions and the
taxpayer often omits to independently formulate and state its case.
In terms of the dispute process, SARS requests information and the
taxpayer and its advisers prepare responses, which result in a chain
of correspondence around the questions raised by SARS, information
it has requested, or contentions it has advanced in the course of
the audit or subsequent correspondence. This often leads to the
objection and eventually the appeal. The grounds of objection are
then formulated effectively as a rebuttal to SARS’ contentions and the
taxpayer often omits to independently formulate and state its case.
13 Rands and sense
Falling into this trap could prove costly for a taxpayer in the latter stages of a dispute, as the grounds of objection and appeal may not have
been formulated appropriately for the case that the taxpayer wishes to advance in court.
Once the grounds of objection and appeal have been formulated, it is extremely difficult to amend a defence, because while existing grounds
can be elaborated on, they generally cannot be changed. For this reason, it is extremely important that the grounds of objection and appeal
are formulated correctly the first time and that the taxpayer states its case comprehensively.
The Value Of Valid Evidence
For example, where the existence of a commercial purpose
is important to dispel contentions of a sole or main purpose
to avoid tax, the taxpayer could advance commercial reasons
and state the need to have created a specific structure or
transaction for commercial purposes, such as to be closer
to customers, to have a presence in a country to enhance
sales and be more competitive, or to centralise certain group
functions.
In assessing evidence, one may then find memoranda
(often drafted by the tax department or corporate finance
department) that neatly sets out the commercial reasons for
establishing a structure or practice, which, on the face of
it, looks like good supporting evidence for the arguments
advanced.
However, when a detailed assessment of evidence is done
and no relevant correspondence is found in the commercial
departments reflecting similar needs or requests, and no
decisions have been made by the commercial departments
to request the establishment of such structures or practices,
this becomes problematic. Here, the absence of evidence
from the commercial departments is in itself problematic, but
together with the constructed defence of the taxpayer’s inhouse tax team or advisers, this amplifies the likely purpose of
the structure to have been tax driven.
On the face of it, what initially looks like a good argument,
supported by contemporaneous supporting documents,
could then, at a late stage in the dispute, turn out to be an
unsustainable or difficult position to defend.
This example illustrates the need to develop a comprehensive
and sustainable legal defence early on in any tax dispute
process.
This requires the involvement of specialised tax defence
lawyers in any tax dispute process, especially given SARS’
aptitude to push dispute matters towards litigation. Receiving
a distress call for assistance at a later stage may be too late to
rescue the matter
Peter Dachs executive and joint head
of ENSafrica tax department.
14 Rands and sense
Achieving an
Impossible balance
By: Bradley Mitchell, Head of Research, Sasfin Wealth
By: Mike Haworth, Investment Strategist, Sasfin Wealth
By: Alec Abraham, Senior Equity Analyst, Sasfin Wealth
So how about cutting back expenditure
The 2017 National Budget appears to be a slightly less demanding exercise than in 2016 on signs of a moderate, but still sub potential,
rebound in growth. However, it is important to note that this expected improvement in growth is being driven by factors that are out of
government’s control; namely higher commodity prices and a dissipating drought.
Sadly, opposing factors, many of which the government has influence, remain potential impediments to achieving and sustaining much
needed higher growth. This growth imperative remains crucial to offset the deficit imbalance that continues to face pressure from increased
current expenditure as a result of factors such as the growing social spending priority.
The main factors that would make the task of fiscal consolidation even more of a headache for National Treasury include the following:
•
Sustained low growth;
•
Execution risk;
•
Policy uncertainty; and
•
ZAR disruption.
Current Budget Position
1.3%
In the latest South African Reserve Bank (SARB) monetary
policy statement, a set of assumptions were provided, one
of which was the estimated potential output growths.
20161.3%
20171.4%
20181.5%
The concern is that these are still very low growth rates and
suggest a serious erosion of South Africa’s potential output
growth in the last few years. More importantly, it implies
that monetary policy is not as accommodative as it appears
at first glance.
The potential growth rate and related output gap form
an integral part of the price formation process in the
South African economy. The output reflects the degree to
which activities and processes in the economy are under
pressure from excessive demand and thus generating
inflation, or alternatively, under-performing and thereby
pointing to reduced inflationary pressures.
1.4%
1.5%
Estimated potential
output growths for 2016
Estimated potential
output growths for 2017
Estimated potential
output growths for
2018
15 Rands and sense
Revenue Growth
The three largest components of national government revenue
are personal income taxes (37% of national tax revenue),
company income taxes (17% of national tax revenue) and ValueAdded Tax (VAT) (25% of national tax revenue). These three
components contribute 80% of the national government revenue.
Total revenue growth for the fiscal year to date to November 2016
slowed to 7.1% year on year from 11.1% in the prior comparable
year.
This growth was largely derived from a 9% increase in personal
income and capital gains taxes, the largest contributors to total
taxes, while company taxes increased by 4.1%. This suggests
that the national government revenue imbalance persists.
Medium Term Budget
Adjustments
In the MTBR, National Treasury lowered its revenue forecast for
fiscal 2017, but a much lower consolidated expenditure reduction
resulted in the main budget balance deficit to still increase to 3.4%
of GDP.
Main budget balance deficit to increase by R8.7bn to R165.0bn
With this ongoing deficit, National Treasury highlighted the need
to institute consolidation measures. We continue to believe that
Treasury will aim to achieve this through proposed tax increases
combined with expenditure cuts each year through to 2019.
A concerning feature in the revenue mix is the decline in taxes on
payroll and workforce due to minimal job growth and a changing
job mix.
Even more troubling was the very low growth in net VAT revenues
up only 4.5% to R180.78bn.
The fundamental growth driver for tax revenue growth is personal
income taxes. As the National Treasury looks for more revenue
to compensate for low company and VAT tax revenue (this year
a R23bn revenue shortfall) it is planning additional tax increases
each year through to 2019. These increases are over and above
the R15bn announced in the Feb-2016 budget.
Budget Targets
In the MTBR, the expenditure ceiling was budgeted to increase
by a compound rate of 7.5% per annum over the next three years.
National Treasury has progressively lowered this expenditure
ceiling in nominal terms. The expenditure ceiling is the non-interest
spending financed from the National Revenue Fund and is one of
the key metrics watched by the international rating agencies to
ensure that SA maintains fiscal discipline given the low growth and
changing political bias.
Revenue Growth
The three largest components of national government revenue are
personal income taxes (37% of national tax revenue), company
income taxes (17% of national tax revenue) and Value-Added Tax
(VAT) (25% of national tax revenue). These three components
contribute 80% of the national government revenue.
Total revenue growth for the fiscal year to date to November 2016
slowed to 7.1% year on year from 11.1% in the prior comparable
year.
This growth was largely derived from a 9% increase in personal
income and capital gains taxes, the largest contributors to total
taxes, while company taxes increased by 4.1%. This suggests that
the national government revenue imbalance persists.
A concerning feature in the revenue mix is the decline in taxes on
payroll and workforce due to minimal job growth and a changing
job mix.
Even more troubling was the very low growth in net VAT revenues
up only 4.5% to R180.78bn.
Bradley Mitchell, Head of Research, Sasfin
The fundamental growth driver for tax revenue growth is personal
income taxes. As the National Treasury looks for more revenue
to compensate for low company and VAT tax revenue (this year
a R23bn revenue shortfall) it is planning additional tax increases
each year through to 2019. These increases are over and above the
R15bn announced in the Feb-2016 budget.
16 Rands and sense
Expenditure growth
Against the background of a non-interest expenditure ceiling, which was introduced in 2015 as an overt measure of fiscal consolidation, noninterest expenditure rose 4.5% in the year to date to November 2016.
The State debt cost was up 16.5% year to date to November 2016 on the back of continued rising net debt levels.
Debt levels in september 2016
Fiscal consolidation
Domestic debt The National Budget now allocates revenues exceeding R1 trillion
per year. Yet the quality of spending needs to be improved.
Too much public spending is regarded as wasteful, too much is
ineffectively targeted and too little represents value for money.
The Medium Term Budget Policy Statement (MTBPS) proposes
to narrow the budget deficit and stabilise debt. This policy of
fiscal consolidation is designed to prevent rapid capital outflows
and their consequent economic disruption, which would set back
transformation, and lead to higher unemployment and social
distress.
+R144bn to R1,963bn
National Treasury is attempting to balance the consolidation
between higher taxes and lower expenditure growth. Proposals
include a combination of tax policy measures that will raise an
additional R43 billion over the next two years, and reduce the
expenditure ceiling by R26 billion. These steps compound on
consolidation measures announced in the 2015 and 2016 Budgets.
Social spending is still getting
priority.
44.8% of GDP
Foreign debt South Africa’s gross public debt
stood at R2,156bn in September
2016, equivalent to 49.2% of GDP.
When public sector cash balances
are netted off the net public debt
level was R1,954bn, equivalent to
44.6% of GDP.
-R7bn to R193bn
4.4% of GDP
17 Rands and sense
Expenditure over the period 2017 to 2020
Health
Human settlement and
municipal infrastructure
+8.2%
Social protection
+8.0%
Post school education and
training
+8.2%
+9.0%
The lowest expenditure increases are in general public services up 4.1%, agriculture, rural
development and land reform up 4.8% and economic affairs up 4.9% over the period 2017 to
2020.
The consolidation measures proposed in this MTBR are likely to have some dampening effect
on economic activity. But the alternative over the medium term would likely be a further loss
of confidence and a ratings downgrade, which could trigger higher interest rates and large
capital outflows. The latter’s risks are greater risks to the economy than the likely effects of
fiscal consolidation.
Risks
Sustained low growth
Sustained low growth will force National Treasury to make more difficult allocation choices
as its current payment demands overwhelm the tax revenue received. This will compromise
government’s capital expenditure objectives and plans. It will also put increasing pressure on
National Treasury’s budgeted main budget expenditure ceiling. Personal income tax growth is
likely to come under pressure as corporate SA are likely to find it increasingly difficult to pay
8% per annum nominal wage growth when corporate gross operating surplus growth is as
low as 4% per annum. We estimate the population of SA’s major urban areas to be growing
at a rate around 5% per annum,made up of 1.7% population growth and the balance the
urbanisation rate. With a high urban population growth rate and low economic growth, minimal
employment growth can be expected. Therefore, urban social demands do not go away when
there is low growth, rather the social protection needs escalate.
National Treasury continues to increase personal taxes at the high end of the income spectrum
and the marginal tax scale continues to steepen. Indirect taxes, rate and taxes and utilities are
all set on steep sliding value and usage scales.
The progressive taxation (direct and indirect) will disposable income of the higher income
groups will come underpressure which will impact consumption growth. In the latest Quarterly
Establishment Survey to Q3:2016, formal sector community services and personal services
employment (most of which is public sector related) compensation growth was 10.4% YoY in
Q3:2016, slowing to 8.5% YoY in Q3:2016.
Alec Abraham, Senior Equity Analyst,
Sasfin Wealth
18 Rands and sense
Execution Risk
The main execution risk lies in wage growth. In this regard, the
expenditure ceiling has limited the hiring rate of public sector
employees. This may be easier to control in general administrative
positions but the growing urban population is placing greater
pressure on police, security, healthcare, education and social
welfare staffing. The largest inflation-linked expenditure is wage
growth. The key risk therefore lies in the under estimation of inflation
which could result in demand for higher wage growth.
Policy Uncertainty
Cabinet changes and politicking have been undermining National
Treasury’s effectiveness in the last 18 months. Rumours abound that
the President is about to reshuffle his cabinet again. The rumours
linger that the ANC leadership want to remove the Finance Minister
Pravin Gordhan. The attacks on Gordhan by the New Age and ANN7
media, calling him a “White Monopoly Capital” stooge, have
intensified and have been reinforced by opinion on his attendance at
Davos in January 2017.
In November 2016, the deputy finance minister Mcebisi Jonas was
quoted in the Public Protector’s State Capture report that he had
been offered R600m by the Guptas to become Minister of Finance.
Deputy Minister Jonas together with other senior politicians in the
National Executive committee are likely to be replaced after the
revelations in the State Capture report. This could place Finance
Minister Gordhan under more pressure from a new Deputy Finance
Minister and the ongoing power struggle with the Head of SARS.
The continued challenge by students using the “fees must fall”
campaign has already contributed significantly to unplanned
expenditure and this challenge does not appear to be fading.
Contingent liabilities associated with the State-owned Enterprises
(SOEs) including the Road Accident Fund (RAF). Government’s
major explicit contingent liabilities are its guarantees. The guarantee
facilities stood at R469.9 billion at the end of 2015/16, while the total
guarantee exposure was R263 billion at the end of 2015/16, since
several entities had not fully used their available guarantee facilities.
The largest guarantee exposure – more than R170 billion – supports Eskom’s capital investment
programme. An exposure of R200 billion relates to the IPPs.
The contingent liability risk is high in PRASA, SAA, SABC, RAF but looks to be reducing in the Post Office, SANRAL and the Land Bank.
South Africa’s Sovereign Credit Ratings
Rating Agency
Current foreign rating
Current domestic rating
Rating
Outlook
Rating
Outlook
Moody’s Investor Service
Baa2
Negative
Baa2
Negative
Fitch Ratings
BBB-
Negative
BBB-
Negative
Standard & Poors
BBB-
Negative
BBB
Negative
Investment Information Inc.
BBB+
Negative
A-
Negative
In mid-January 2017, Standard and Poors Global (SPG) warned that South Africa’s credit ratings still hang in the balance. The economic
growth trajectory still looks too low. The country’s rating being one notch above sub-investment grade leaves no room for error.
SPG also highlighted that 2017 looked likely to be busy politically because the African National Congress (ANC) is heading for an elective
conference which could result in changes in government.
Further ministerial changes and increased litigation undermines policy implementation, which elevates the risk of credit downgrading
significantly. Other risks such as “fees must fail” demands, persistent contingent liabilities in State Owned Enterprises and growing social
support pressures look unlikely to abate in fiscal 2018.
The international credit rating agencies repeatedly cite the strength and independence of its key institutions as a key factors protecting the
constitutional base of South Africa and providing a backbone to the investment grade ratings. These key institutions are:
•
National Treasury,
•
The Auditor-General,
•
The Reserve Bank,
•
The Independent Electoral Commission,
•
The Public Protector, and
•
Judiciary and the courts.
19 Rands and sense
ZAR disruption
The continued and intense politicking around National Treasury
raises doubts about its continued independence.
The Reserve Bank is seen to be independent and that monetary
policy is conducted independently to maintain price stability in the
context of weak growth and is not a pawn in the State political power
struggle.
The Public Protector’s office has a new Public Protector in Busisiwe
Mkhwebane who replaced Thuli Madonsela when her tenure ended
in 2016. In the new Public Prosecutor’s first 100 days she has
asked the police to probe the leaking of the audio recording of
Madonsela’s interview with President Jacob Zuma and shelved the
former Public Protector’s State Capture report. The independence of
the Public
Protector’s office is now in some doubt. This is reinforced in the
timing of a preliminary report by Public Protector Mkhwebane
provisionally finding that the apartheid-era bank bailout of Bankorp
was unlawful and Absa Bank could be forced to pay R2.25‑billion
to the fiscus. Absa responded describing the preliminary report as
containing “several factual and legal inaccuracies” which distort the
context and hence judgement.
The judiciary is increasingly being overwhelmed by South African
politics which is becoming progressively more litigious. While this
is substantially boosting demand for legal and court services, it is
placing an increasing financial burden on government expenditure
and extending the courts case backlog. Both factors are eroding the
judiciary system effectiveness. The latest court battle between the
Guptas and Gordhan is a further distraction for the Finance Minister.
Mike Haworth, Investment
Strategist, Sasfin Wealth
The strengthening ZAR is driven by yield seeking foreign portfolio
capital inflows is likely to be disruptive given the very slow expected
real growth and static or slowing nominal GDP growth in the South
African economy in 2017 and the rising risk of increasing US
protectionism and its negative influence on already slowing global
trade.
In Summary
National Treasury’s task of lowering the budget
deficit and slowing the rise in public debt to
GDP continues to pose a challenge, particularly
in the context of weak, albeit improving,
domestic economic growth and growing
structural imbalances.
Even though the need for fiscal discipline in South Africa remains
critical, the consolidation measures are likely to have some
dampening effect on economic activity. But the alternative over
the medium term would likely be a further loss of confidence and
a ratings downgrade, which could trigger higher interest rates and
large capital outflows. The latter’s risks are greater risks to the
economy than the likely effects of fiscal consolidation
In conclusion, faced with a plethora of risks that could upset the
potential to reduce the budget and fiscal deficits, tax payers,
particularly high income earners, will be forced to carry a greater
portion of the of the deficit reduction burden.
Overview
Who should invest?
Suitable for conservative
investors looking for an
after tax income greater
than ZAR cash.
Who does the fund
work for?
Taxable investors, including
individuals, trusts and
corporates.
Key benefits of the portfolio:
•
•
•
•
•
Low risk
Enhanced after tax return
Current yield: 6% - 7%
Daily liquidity
Quarterly distributions
Graphic illustration
Sasfin BCI Optimal Income Fund
vs Money Market
The below graph depicts the compound effect of the
after tax outperformance of the Sasfin Optimal Income
vs Money Market.
Assumptions:
•
•
•
•
•
6.5%
Return comparison
R6 800 000
R6 700 000
R6 600 000
R6 500 000
R6 400 000
The fund can invest in a
range of ZAR denominated,
high yielding investment
instruments including
preference shares, bonds,
money market instruments
and debt instruments.
R6 300 000
R6 200 000
•
R6 204 124
R6 100 000
R6 000 000
R5 900 000
R5 800 000
Money Market
Fund fees
•
R6 850 433
R6 900 000
What instruments can
the portfolio manager
invest in?
•
•
•
Investment amount: R5 000 000
Term: 5 years
Current Sasfin Optimal Income yield:
Current Money Market yield: 7.3%
Tax Rate: 41%
Optimal Income
After tax yield comparison
No initial fee
No exit fee
All yields quoted are net of
management fees
Annual management fee:
A class – 1.5% (Excl. VAT) - individuals
B class – 1.25% (Excl. VAT) - institutional
Adviser fees are deducted
separately as agreed with client
10%
4,4%
5%
6,5%
0%
Money Market
Disclaimer:
•
29 Scott Street Waverley Johannesburg 2090 PO Box 95104 Grant Park 2051 Tel: +27 11 809 7500 Fax: +27 86 720 1258
Directors MEE Sassoon* RDEB Sassoon*# (*Non-executive #British)
Optimal Income
21 Rands and sense
Should
you be
investing
locally?
By Philip Bradford, Head of Investments,
Sasfin Wealth
30 years ago two rand was worth approximately one US dollar.
Currently to buy one US dollar, you need around R13.50. This
means that if you had invested R100 000 into US dollars 30
years ago it would now be worth about R675 000; a gain of
575%!
So in hindsight it was an obvious decision to take all of your
money out of South Africa. Or was it?
Unfortunately, as with most things in life, it is not that simple.
The above calculation ignores the “8th wonder of the world”,
compound interest. In fact, when including the interest in the
two currencies the US dollar cash investment would now be
worth R1 822 000 while the rand cash investment would be
worth R2 530 000.
So am I trying to suggest that you should keep all your money
in South Africa? Definitely not. In fact the above scenario looks
very different over the last 5 years where, because of sharp
depreciation of the Rand, a simple investment in UD$ cash
would have returned 88.6%!
Therefore when someone makes such an important decision
with their life savings, it is important to consider the facts:
“Africa is not for sissies”
From a risk perspective it doesn’t make sense to leave
all your wealth in one country, even if it doesn’t have the
political and economic volatility that we experience. The
only necessary certainty in investing is diversification. It has
nothing to do with patriotism; it is simply prudent to diversify
across a variety of investments, currencies, companies and
countries.
“The world is your oyster”
When it comes to investing in shares, why limit yourself to one
local company if you could rather buy shares in some of the best
companies in the world? The world is filled with opportunities and
investors are now able to easily invest in a large variety of investments
across the globe. This is particularly true of stock markets where it is
now easy for our clients to access the biggest and best companies
in the world from one account. In the past if you wanted to invest in
oil, luxury goods and beverages you could only really buy Sasol,
Richemont and SABMiller. Now you can also consider alternatives like
Shell, LVMH (Louis Vuitton - Moët Hennessy) or Diageo. These global
leaders are not only accessible, but are often cheaper than local
alternatives.
There are also industries and related companies that are not available
in South Africa. Companies such as Google, Amazon, Microsoft and
Apple don’t have peers on the JSE. These are some of the most
valuable companies in the world and should be considered by any
investor.
In addition, the companies that are listed on the JSE are ever
more expanding their operations internationally. It is estimated that
more than 70% of the earnings of companies listed on the JSE are
international. This means that even a “local” investment on the JSE is
mostly “offshore”.
Home town advantage
There is, however, one advantage that South Africa has over first
world countries which is ironically as a result of our relatively high
inflation and political and economic uncertainty: high interest
rates. Swiss investors that earn negative interest on their cash are
envious of our local bond interest rates of over 8%.
Local listed property companies can also offer good yields and
better growth compared to foreign property equivalents. This is
mainly because the local lease increments are linked to inflation
which is much higher
than in the developed
markets. Therefore,
carefully-selected local
property companies
can offer very attractive
yields.
In conclusion, it makes
sense for South Africa
investors to invest a
portion of their assets
in local bonds and
property when income
is required, where
returns of over 10%
are currently possible.
However, when looking
for capital growth they
should investing in the
best companies and
industries in the world.
Philip Bradford, Head of Investments,
Sasfin Wealth
DISCLOSING
Undeclared foreign
Assets in offshore
Trusts
By : Hannelie La Grange, Tax Associate,
ENSafrica
I
n the context of trusts situated in foreign participating
jurisdictions, the Common Reporting Standards (CRS) require
the trustees to identify the settlor, beneficiaries and other
natural persons exercising ultimate effective control (including
through a chain of ownership) and report the necessary financial
information in respect of those persons to the relevant foreign
revenue authority. In the event that the said persons are identified
as residents of South Africa, the reported information will, in turn,
be automatically exchanged with the South African Revenue
Service (SARS).
The South African authorities have, with regard to the imminent
reporting under CRS and the investigations surrounding the
Panama Papers, provided an opportunity for non-compliant
South African residents to regularise their tax affairs in respect
of offshore assets under the Special Voluntary Disclosure
Programme (SVDP), which commenced on 1 October 2016 and
will close on 31 August 2017. It has, however, been questioned
whether any alternatives to voluntary disclosure are available for
South African residents with undeclared foreign assets in offshore
trusts.
SVDP – relief granted for tax noncompliance
An application for relief under the tax SVDP may not be made by
or on behalf of a trust.
However, a person who is a donor (or the deceased estate of a
donor) or a beneficiary in relation to a discretionary trust, which
is not a resident, may elect that any asset situated outside South
Africa, which was held by the discretionary trust during the period
1 March 2010 to 28 February 2015, be deemed to have been held
by that person for the purposes of all tax legislation (including for
estate duty purposes).
The election contemplated above may only be made if the
relevant asset:
•
•
•
Had been acquired by the trust by way of a donation or is
derived from such a donation.
Has been wholly or partly derived from any amount not
declared to the Commissioner as required by the Estate Duty
Act, 1955 or the income Tax Act, 1962.
Has not vested in any beneficiary of that trust at the time that
election is made.
The South African authorities
have, with regard to the imminent
reporting under CRS and the
investigations surrounding the
Panama Papers, provided an
opportunity for non-compliant
South African residents to regularise
their tax in respect of offshore
assets under the Special Voluntary
Disclosure Programme (SVDP)
23 Rands and sense
As a result of this election, the trust will
effectively be “transparent” for tax purposes,
to the extent of the election made by the
relevant person. Accordingly, the so-called
attribution and distribution rules will not apply
in respect of any income, expenditure or
capital gain relating to that elected asset,
during the time such asset is deemed to be
held by that person.
The relevant person would then apply for relief
under the tax SVDP in respect of the elected
asset. The relief provided would include the
following:
• The undeclared receipts and accruals
will be exempt from income tax (other than
employees’ tax) and estate duty in respect
of any tax year ending on or before 28
February 2015.
• No penalties for understatement will be
levied.
• No criminal prosecution will be pursued.
However, an amount will be included in the
taxable income of the relevant person in the
2015 tax year equal to 40% of the highest
market value of the elected asset determined
at the end of each of the 2011 to 2015 tax
years (inclusive). The market value must be
determined in the applicable foreign currency
and translated to South African rand at the
spot rate on the last business day in South
Africa on or before the end of each tax year.
In terms of the guidance published by
SARS, the permanent VDP remains open
for disclosures where it is argued that all or
part of the funding of the elected asset is not
taxable in South Africa or has already been
taxed in South Africa.
It has, however, been
questioned whether any
alternatives to voluntary
disclosure are available for
South African residents with
undeclared foreign assets in
offshore trusts.
What are the alternatives?
Hannelie La Grange, Tax
Associate, ENSafrica
The question has been raised whether, if the
trust deed of a foreign discretionary trust in
an early adopter country distributes the whole
of its assets to a new trust in a fast-follower
country in settlement thereof for the benefit
of the existing beneficiaries and the first
mentioned trust is wound up before 2017, for
CRS purposes, the identity of the settlor of the
original trust would not be reported in either
jurisdiction.
It may also be considered whether, if
the trustees in an early adopter country
retire and appoint new trustees in a fastfollower jurisdiction, this could have the
effect of migrating the tax residence of
the foreign trust, for CRS purposes, into
another jurisdiction. The argument is that
the outgoing trustees would not have any
CRS reporting obligations in respect of the
trust since its place of effective management
will be located in the adopted jurisdiction.
However, certain trustees hold a different
view in this regard.
Subsequent to the migration, the foreign
trust should, in principle, be subjected to
the information exchange procedures of its
adopted jurisdiction.
Navigating the maze of
offshore trusts
It is advisable for South African
residents with undeclared assets in
offshore trusts to have regard to the
fact that the relief under the tax and
exchange control SVDP will not be
available in respect of offshore assets
that have been disclosed to SARS
under an international exchange of
information procedure, such as CRS.
Although offshore trustees may
have differing views regarding
their obligations in respect of the
implementation of CRS in the relevant
offshore jurisdictions, CRS will
ultimately result in the offshore assets
of South African residents being
reported to SARS.
The market value must
be determined in the
applicable foreign currency
and translated to South
African rand at the spot
rate on the last business
day in South Africa on or
before the end of each tax
year
Don’t
stagnate,
innovate
By David Shapiro, Deputy Chairman,
Sasfin Securities
A
t Sasfin we have always comforted our clients by advising them that the JSE
was more a reflection of the global economy than of the South African economy.
Companies such as alcohol producer AB Inbev, global cigarette manufacturer
British American Tobacco, resources giants such as Glencore and BHP Billton, luxury
retailer Richemont and consumer conglomerates Steinhoff are still JSE loyalists, yet
remain globally dominant businesses in their respective sectors.
In terms of market capitalisation (value) 65% of the JSE is made up of companies that
earn a major portion of their income offshore. If we consider that a number of our resource
companies sell their product in dollars, the number moves up to 70%.
At this point, the theory seems sound. Surely the JSE, which is dominated such influential
global companies, is a mirror reflection of the global economy?
Reconciling the lag
But does the theory hold? When comparing the performance of the JSE with the S&P500
(a measure of US markets) in dollar terms the outcome is worrying. Over the past 5 years
the S&P500 has outclassed the JSE by a staggering 84%.
It is only when you analyse the composition of the two markets do you realise why the JSE
has underperformed the American market by such a large margin.
Let’s assess the composition of the ten most valuable companies in the US by market
cap. These results are fascinating – this list predominantly comprises technologyfocussed companies. Innovative, forward-thinking and possibly precocious are some of
the ways we have come to describe the likes of Apple Inc., Alphabet (Google), Microsoft,
Amazon and Facebook. In fact, what is more astounding is that the top eight companies
in the US today are spending as much on research and development in a single year as
the total value of Naspers (nearly R1 trillion!)
Obviously the steady rand depreciation has played a part in favouring the US market, but
the JSE’s heavy exposure to offshore earnings cushioned most of that advantage
Understanding the core
difference
The real reason for the JSE’s
disappointment is that, with the exception
of Naspers, the JSE is made up of “old
economy” stocks. What sets Naspers
apart is that the company has a major
investment (34%) in giant Chinese
technology player, Tencent.
Apart from this, the JSE is heavily tilted
towards old-school consumer stocks
(AB Inbev, British American Tobacco,
Richemont and Steinhoff), resources
(Glencore, BHP Billiton, Anglo American
and Sasol) and financials (FirstRand,
Standard Bank, Old Mutual and Barclays
Africa. This tells us that companies
indigenous to SA are relatively stagnant,
not innovation-driven and under serious
pressure to hold their own against global
competitors.
Five of the top ten US companies are fastgrowing tech companies (Apple, Alphabet,
Microsoft, Amazon and Facebook). The
other five are Warren Buffett’s investment
vehicle, Berkshire Hathaway, global oil
giant, Exxon, investment bank, JP Morgan
Chase, industrial enterprise, General
Electric and pharmaceutical company,
Johnson & Johnson.
25 Rands and sense
Ten most valuable companies on the JSE by Market
capitalisation in US$
180,000
160,000
178,543
120,509
140,000
120,000
100,000
69,570
80,000
59,512
60,000
39,602
39,270
40,000
24,112
21,734
21,607
21,027
20,000
0
Ten most valuable companies in the US by Market
capitalisation in US$
700,000
600,000
500,000
630,885
562,235
485,959
395,830 383,688
400,000
369,283 357,777
312,045 300,359
276,273
300,000
200,000
100,000
0
Digging a little deeper
The value today of a $100 dollars invested in the top ten South African shares
and the top ten US stocks over the past five years tells it all. Eight of the top
nine companies by returns delivered over this period are US-based. Again, it’s
Amazon, Alphabet, Facebook, JP Morgan Chase, Microsoft and Apple Inc, with
the sole local exception being Naspers (primarily because of the performance
of Tencent.)
The bottom line is that technology is enriching the lives of hundreds of
millions of internet users. Each day they communicate, share experiences,
consume information and seek entertainment – and it’s beginning to reflect
meaningfully on earnings. The concern of investors several back was whether
these ‘tech darlings’ could monetise their products and services. They have
done so emphatically. Wherever we look, the statistics are superb – the global
internet population has grown from 2.1 billion in 2012 to 3.4 billion in 2016.
Over the next decade users could grow to 7.0 billion with China, India and
Indonesia leading the way.E-commerce is projected to grow between 10%
and 20% annually for the next 10 years, driven by growth, urbanisation and the
rising middle class in developing markets. This explains not only the current
dominance, but importantly for investors, the future strength of the technology
sector. Returning to the original premise – how can our local businesses
close the gap against their American counterparts? The answer it seems is to
innovate, innovate and innovate some more.
David Shapiro, Deputy Chairman, Sasfin Securities
26 Glossary
GLOSSARY OF KEY
TERMS
CAPITAL EXPENDITURE
CIT
CURRENT EXPENDITURE
EM
FISCAL CONSOLIDATION
FISCAL DRAG
FISCAL POLICY
GDP
MTBR
NDP
PIT
SME
Spending on assets such as buildings, land, infrastructure and
equipment.
Company Income Tax
Government expenditure on salaries and goods and services,
such as rent, maintenance and interest payments. See also
consumption expenditure.
Emerging Market
Policy aimed at reducing government deficits and debt
accumulation.
The effect of a progressive taxation system on the country’s
economy.
Policy on taxation, public spending and borrowing by the
government.
Gross Domestic Product
Medium Term Budget Review
National Development Plan
Personal Income Tax
Small and Medium Enterprise
VAT
Value Added Tax
YTD
Year to Date
BUDGET SPEE CH
L
I
S
T
T
V B T
E E L
T
S
E X G O E Q A T
I
U F
P
E N P
P
R G S
T
A S
I
S
F
D A R T
U R J
H R L
C S
A K O A P
N T
R L
G U A S
S
R P
M C P
L
N I
P
I
F
F
L
R O A S
C L
R L
O S
Q T
S
M Z
S
J
T
T
G A E F
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