International Institute of Business & Tax Excellence Newsletter (IIBTE.com)
Edition 4 - May 2020
Welcome to the fourth edition of the IIBTE newsletter, welcome to edition 4!
The International Institute of Business & Tax Excellence is poised to harness globalization, one business at a time.
Edition 4 of the International Institute of Business & Tax Excellence Newsletter (IIBTE.com) is proudly sponsored by:
Cayman International Asset Managers, is a fully integrated international asset management organisation.
Cayman was founded to acquire, develop and manage offshore assets in emerging international markets with high-growth potential. Strong relationships to local market leaders of the industry ensure a sound foundation through which is integrated with its global network.
Cayman’s service include but are not limited to:
Wealth Planning
Consulting & Advisory Services on Mergers & Acquisitions
TESCM – Tax Efficient Supply Change Management
Tax Planning
Cross Border Transactions
Cross Border Investments
Venture Capital Investments
In this edition:
Ease of Doing Business in South Africa
by Saijal Singh of Cayman International Asset Managers (Pty) Ltd
www.caymanassetmanagers.comCOVID-19 Accounting Considerations
by Azhar Mia of Kreston KZN
www.krestonsa.com/kznCOVID-19 and its Impact on Africa
by Nazneen Adam of Coral International Asset Managers (Pty) Ltd
www.coralassetmanagers.com
Article 1:
Ease of Doing Business in South Africa
A. INTRODUCTION
1. ECONOMIC GLOBALISATION
Shangquan (2000) defined economic globalization as the increasing interdependence of world
economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies.
The United Nations (2000) elaborated that the participation of developing countries in the globalization process enables them to better utilize their comparative advantages, introduce advanced technologies, foreign capital and management experience. It is also favorable for eliminating monopolistic behaviors and strengthening market competition.
B. SOUTH AFRICA
1. EASE OF DOING BUSINESS
According to the World Bank (2018), Doing Business measures aspects of business regulation and their implications for company establishment and operations. The report does not include all relevant issues for businesses’ decisions but covers pertinent aspects which are under the control of policy makers.
Although the Doing Business Report 2020 shows that developing economies are catching up with developed economies in ease of doing business, the gap remains wide. An entrepreneur in a low income economy typically spends around 50 percent of the country’s per-capita income to launch a company, compared with just 4.2 percent for an entrepreneur in a high-income economy. It takes nearly six times as long on average to start a business in the economies ranked in the bottom 50 as in the top 20.
South Africa, an emerging economy, was selected for analysis and currently ranks 84th globally, and 5th among African countries.
2. INSTITUTIONAL QUALITY INDICATORS
Doing Business data is utilized widely by stakeholders to guide policies, conduct research and develop new indexes.
The choice of the Doing Business indicators was guided by economic research, from World Bank Enterprise Surveys which provide an insight into the challenges faced by entrepreneurs globally.
The 12 indicators used by the World Bank in preparing the Doing Business Report are as follows:
➢ Starting a business
➢ Dealing with construction permits
➢ Getting electricity
➢ Registering property
➢ Getting credit
➢ Protecting minor investors
➢ Paying taxes
➢ Trading across borders
➢ Enforcing contracts
➢ Resolving insolvency
➢ Labor market regulation
➢ Contracting with government
3. ANALYSIS OF INSTITUTIONAL QUALITY INDICATORS
The two indicators analyzed with reference to South Africa are as below:
i. Starting a business
The factors of measure include procedures, time, cost and minimum capital to start a limited liability company.
In 2009, South Africa began improving efficiency in terms of starting a business. The first reform in 2009 included reducing the time and cost to start a business by eliminating the need to use a lawyer. In 2012, they continued to improve on this indicator by implementing its new company law, which simplified the incorporation documents required.
In 2017, South Africa improved further by introducing an online portal to search for a company name. the final reform pertaining to this indicator was in 2019 when the time for online business registration was significantly reduced.
The best performing nations under this indicator included Georgia, New Zealand, Rwanda, Slovenia, Australia, Colombia and Mauritius while South Africa ranked at 139 indicating that much reform is necessary in eliminating barriers to start a business in South Africa.
ii. Trading across borders
World Bank measured the time and cost associated with the logistical process of exporting and importing goods. The measure included the time and cost (excluding tariffs) associated with three sets of procedures:
1. Documentary compliance
2. Border compliance
3. Domestic transport
within the overall process of exporting or importing a shipment of goods.
The only reform by South Africa from 2008 to 2020, was in 2013 where the time and documents required to export, and import was reduced through the ongoing customs modernization program.
Significant remediation and reform procedures are required in addressing barriers to cross border trading to improve performance on this indicator as South Africa ranked at 145 among 190 other nations.
C. CONCLUSION
Although Sub-Saharan Africa remains one of the weak-performing regions on the ease of doing business scale, South Africa has slipped considerably since 2008, where they were ranked 32nd.
Now, at their lowest ranking yet, a more focused approach is required to implementing reformatory policies and procedures particularly in starting a business and trading across borders as these pose the greatest challenge, and have the greatest potential to enabling a pivotal change in the economy.
D. BIBLIOGRAPHY
Romer, Paul, 1992, “Two Strategies for Economic Development: Using Ideas and Producing Ideas,”
ABCDE, World Bank.
Gao Shangquan, 2000. "Economic Globalization: Trends, Risks and Risk Prevention," CDP
Background Papers 001, United Nations, Department of Economics and Social Affairs.
World Bank. (2019). Doing Business Report 2019. “Ease of Doing Business Report 2019.”
World Bank. (2020). Doing Business Report 2020. “Ease of Doing Business Report 2020.”
Article 2:
COVID-19 Accounting Considerations
Governments around the world are providing access to a broad range of possible actions to provide assistance to legal entities (companies, sole proprietors etc.) in the current conditions caused by the COVID-19 coronavirus pandemic.
This article, therefore, with reference to the International Financial Reporting Standard’s (IFRS), provides broad insight into the accounting for government assistance which is thus dependent on the nature of it. The requirements of the standards vastly differ on when to recognise that assistance and how to measure it.
GOVERNMENT ASSISTANCE
Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.
Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity [IAS20, para 3].
Under IAS 20, a company recognises a government grant when it has reasonable assurance that it will comply with the relevant conditions and the grant will be received.
Government grants shall be recognised in the entity’s statement of profit or loss on a systemic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate [IAS20, para12].
GOVERNMENT LOANS
A company generally accounts for the benefit of a government loan at a below-market interest rate as a government grant under. It accounts for the loan in accordance with IFRS 9 Financial Instruments. The benefit that is the government grant is measured as the difference between the fair value of the loan on initial recognition and the amount received IAS 20 [IAS20, para 10A].
INCOME TAXES
Government assistance in the form of benefits that may impact a company’s taxable profit or its income tax liability – e.g. tax reliefs for certain types of income, additional tax deductions, a reduced tax rate or an extended period to use tax losses carried forward – are generally accounted for under IAS 12 Income Taxes, not IAS 20.
For example, a non-taxable government grant related to an asset will result in a deferred tax asset being raised on initial recognition since the grant is not deducted from the assets depreciable amount.
SUPPLIES OF GOODS AND SERVICES
Transactions with governments that cannot be distinguished from the normal trading activities of a company are not government grants.
BIBLIOGRAPHY
A guide through IFRS Standards – July 2016
Article 3:
COVID-19 and its impact on Africa
Back in 2015, world leaders converged at the United Nations and were party to an agreement to work towards a new world that was worth looking forward to. They agreed on 17 goals, known as ‘Global Goals’ which they would like to be achieved by the year 2030. One of these goals was an end to poverty.
Despite the number of people living in global poverty declining from 36% to 10% from 1990 to 2015, there is still an amount of 736 million people living on less than $1.90 a day. (World Bank, 2019) Experts at the Development Data Group predict, using the available data and estimates, COVID-19 will push 49 million people into extreme poverty in 2020. They predict that Sub-Saharan Africa, even though less hit from a health perspective will be the region most affected in terms of extreme poverty.
The recent analysis according to the latest Africa’s Pulse, the World Bank’s twice-yearly economic update for the region shows that, “COVID-19 will cost the region between $37 billion and $79 billion in output losses for 2020 due to a combination of effects. They include trade and value chain disruption, which impacts commodity exporters and countries with strong value chain participation; reduced foreign financing flows from remittances, tourism, foreign direct investment, foreign aid, combined with capital flight; and through direct impacts on health systems, and disruptions caused by containment measures and the public response.” (World Bank, 2020)
In South Africa, the decision to extend the initial lockdown period and phase-in the returning to normalcy governed by various levels has followed in the footsteps of many other countries, such as some of those hardest hit by the virus – Italy, France, Germany and Spain amongst others. Together with many other African countries, South Africa made these decisions quickly and decisively in a bid to flatten the curve of infections but also prepare the very fragile healthcare system for the peak in infections that the country can expect later this year.
Africa requires a customised policy to assist in not only curbing the virus but also in our response during its transmission stage and the aftermath. There are various factors to consider ranging from the large informal sector that needs support, to lack of adequate water and sanitation as well as the sprawling informal settlements where social distancing is impossible. People in marginalised communities do not have access to resources that will assist them in fighting off the disease and the unavailability of them have trickle-down effects that are felt for many years to come.
With the unemployment rate in several African countries above 20%, one can deduce that the economic and social impact this has will be overwhelmingly negative. The impact of this new disease on businesses and their ability to provide jobs will be determined by many unknowns and with the outlook being that South Africa will reach 40% unemployment, the results are going to be catastrophic.
The goal of 2030 is to end poverty but to achieve this goal, there will need to be a global effort and increased assistance from the wealthier nations to those who require funds to help them recover. Is this ambitious goal going to be achievable with the presence of COVID-19 in the mix?
It will only be the citizens of the world, its leaders and their people’s response to this pandemic to answer this.
BIBLIOGRAPHY
Bishop, C (2020) SA “bending the curve” in the fight against COVID-19 – WHO https://www.cnbcafrica.com/coronavirus/2020/04/16/sa-bending-the-curve-in-the-fight-against-covid-19-who/
Mahler,D.G; Lakner, C (2020) The impact of COVID-19 (Coronavirus) on global poverty: Why Sub-Saharan Africa might be the region hardest hit https://blogs.worldbank.org/opendata/impact-covid-19-coronavirus-global-poverty-why-sub-saharan-africa-might-be-region-hardest
No Author (2018) Decline of Global Extreme Poverty Continues but Has Slowed: World Bank https://www.worldbank.org/en/news/press-release/2018/09/19/decline-of-global-extreme-poverty-continues-but-has-slowed-world-bank
Parekh, N (n.d.) COVID-19 underscores need to overhaul social policies across Africa https://www.theigc.org/blog/covid-19-underscores-need-to-overhaul-social-policies-across-africa/
Selby, D (2018) What Are the Global Goals And Are We Close To Achieving Them?https://www.globalcitizen.org/en/content/global-goals-sustainable-development-progress/
Sibeko, S (2020)COVID-19: African countries heading for peak in cases https://www.enca.com/news/some-african-countries-heading-peak-covid-19-cases-weeks-who-official
Zulu, S (2020)SA’s unemployment rate could reach 40% due to COVID19 https://ewn.co.za/2020/05/04/sa-s-unemployment-rate-could-possibly-reach-40-due-to-covid-19-mogajane
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