News in South Africa 14th November:

1. SARS needs funds:

The South African Revenue Service (SARS) will soon run out of ways to collect more taxes as tax hikes are not an option, and the factors limiting the country’s tax revenue are outside the service’s control.

SARS needs funds
Photo by cottonbro studio

This is feedback from Deloitte Africa’s tax controversy leader, Bernard Mofokeng, who told eNCA that SARS has been improving revenue collections for several years. 

“They’ve recently implemented auto-assessments, have improved their systems, and are conducting more audits than before,” he said. 

“So, collections are improving, and they are improving their system. It’s good because SARS is increasing its collections and compliance rate.”

Despite SARS’ efforts, South Africa currently faces a tax revenue shortfall of R56.8 billion.

This is due to government expenditure outpacing revenue and state-owned enterprises’ (SOEs) failures weighing on corporate income tax revenue.

Transnet’s underperformance in the past financial year has particularly weighed on the mining and manufacturing sectors’ operations.

While many of these companies usually make significant contributions to the fiscus through corporate income tax, their inability to effectively transport their products for export hurts their revenue, thereby lowering their tax contributions.

“It’s difficult for the manufacturing sector and mining companies to earn enough revenue so they can pay more taxes. As a result, this has a deleterious effect towards tax collections and how much SARS can collect,” Mafokeng said. 

“It’s a challenging scenario for the tax collector, for the government, for business in general. Corporate collections are down, and SARS is actually at that point where there is not much it can do but just stimulate processes for collection.”

It is estimated that Transnet and Eskom are contributing to a loss of about R200 billion in revenue collection.

However, Mafokeng said it is not plausible for the National Treasury to increase taxes “mainly because it’s not the taxpayers’ problem that we’re in this situation”. 

“It’s that there’s not been any economic growth, and it’s all up to the government to make sure that the environment is suitable for businesses to thrive.” 

He said all the SOEs crucial to a thriving economy must be fixed urgently. 

“Until that happens, we’re going to be in this spiral, which is exacerbated by the high fuel prices that we are facing currently,” he said. 

“All these factors, most of them are within the government’s control, and hiking taxes will not resolve the problem.”

However, he said that the government will soon need more money from taxpayers, and SARS will have to keep finding innovative ways to collect more taxes and bring more taxpayers into the tax net. 

“At a certain point, there’s going to be a limit to what SARS can do, looking at the current economic circumstances.”

2. Transnet on downgrade watch:

Ratings agency Moody’s Investors Service has placed Transnet’s credit ratings on review for a downgrade, saying that it is concerned about the entity’s weakening liquidity position and high refinancing risk.

Transnet has debt maturities of about R10bn from December to March 2024, including the November R4.6bn short-term bond that was rolled over by the Public Investment Corporation. Repayment is due in March.

3. CPT power-purchase agreements:

The Western Cape provincial government is considering establishing a company to buy electricity from independent power producers (IPPs) on behalf of participating municipalities – hoping to leverage their joint buying power to negotiate lower tariffs.

According to Alwie Lester, special advisor to Western Cape Premier Alan Winde, the aim is to get cheaper electricity rather than mitigate load shedding. Even if renewable energy sources are combined with batteries and can supply electricity around the clock, the supply will still be vulnerable to load shedding if it is wheeled through the Eskom network.

Lester says the provincial government has appointed consultancy group PwC to assess the feasibility of the project. It is looking at different models, including establishing an electricity trader or a municipal special purpose vehicle.

Energy regulator Nersa has so far licensed four traders in the country, but not all are operational yet.

The trading model allows the trader to enter into long-term power-purchase agreements (PPAs) with IPPs at a lower tariff than Eskom’s. The margin covers its operational cost and profit, but it must be big enough to still present some discount to potential end users.

Moneyweb has learnt that PwC is of the view that a public sector trader does not require a licence, but in preliminary discussions, Nersa did not agree with that. 

“When the feasibility study has been concluded and the municipalities are keen, we will develop the business model,” says Lester. He expects that to be around the middle of next year.

Time will tell if there will be enough of a margin to cover the cost of the municipal entity and still provide cheaper electricity to the municipalities.

Another matter to consider, according to Lester, is whether it is necessary for participating municipalities to jointly form a geographical unit.

He says the concept is currently being workshopped with municipalities, and they are focusing on a few strong councils to pave the way. Cape Town, Stellenbosch and Saldanha Bay are among those being consulted.

Lester says the municipalities have many questions and are concerned about the tariffs. Other issues are whether municipalities that are not part of the project from the beginning will be allowed to join later and whether it will be possible for municipalities to withdraw.

When questioned about its position on the matter, the City of Cape Town said it is too early to discuss it publicly. Representatives of some of the other municipalities, who expressed their views on the condition of anonymity, are sceptical.

4. Big changes for malls:

The Broll property group says that shopping malls in South Africa are changing tack, with small and medium-size retail centres on the rise and stores themselves looking at new ways to keep shoppers interested.

The South African retail landscape has been hit with several high-profile and large shopping malls going under the hammer or changing owners in recent months, giving rise to the impression that retail centres are not captivating shoppers like they used to.

According to Broll, while retail foot traffic and trade may not be at the same levels seen pre-pandemic, the sector is still going strong and is evolving with the times.

“While malls may be changing hands, those being sold within the property industry are undergoing revamps to meet evolving shopper needs,” it said.

“Our shopping centres may not be trading at the same levels they were prior to the pandemic, but they are still trading – and trading well.”

The group noted that online shopping is increasing in South Africa, and the rise of making online purchases for necessities is a disruptor to the retail centre sector. But even in this context, online still accounts for less than 5% of total sales – and this figure is itself a 40% increase from before Covid.

What is true is that there has been a decline in the construction of “mega malls”, Broll said – but the number of mid-size malls – between 20,000 and 30,000 square metres – is on the rise.

Another shift being seen is that older centres are being revamped and refurbished – and this is taking place across all provinces, it said.

South Africans continue to enjoy visiting centres for the experience of eating out or shopping, particularly fashion items. There has also been a notable rise in the number of retail centres being built in rural or remote areas.

“Many people who live in outlying and rural areas look to community shopping centres to get unique experiences. In this respect, landlords are creating a greater number of ‘experiences’ for their visitors, increasing the number of activations and other activities aimed at enticing and entertaining visitors to malls,” Broll said.

Feeding into this, the group said there has also been a move by retailers themselves towards more “immersive and interactive shopping”, in line with trends in Japan and Singapore.

“Although in its early stages in South Africa, shopfronts are starting to include movement to showcase products and attract customers.

5. Massive Joburg hailstorm:

A massive hailstorm hit several parts of Joburg – damaging properties, cars, municipal infrastructure and leaving roads covered in a pile of hail.

Meanwhile, insurance companies are starting to feel the pinch following the devastation caused by the hailstorm.

The owner of Benneton Insurance Brokers – Ryan Shapers – said while people could claim for damage caused by hailstorms, there were several considerations.

“You need to have the correct insurance in place. You need to have buildings cover; contents cover for your house, and you need to have your vehicle comprehensively insured. Provided you’ve got that, hail damage is covered.”

All information sourced from articles posted by: DailyInvestor, BusinessDay, Moneyweb, BusinessTech, and EWN.

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