Artificial Intelligence (AI) is being rolled out in many guises throughout business. One instance of this is voicemail with some amusing results. One person recalls getting a voicemail message which said “I’m a user music to reach an audience” and, another example, “ — working with the Russian” but “I got killed”.
As the person said it’s hard to feel your career will be threatened by AI when you come across examples such as these.
In another irritating situation, a colleague recently got a call from a cell phone company which asked “will you pay your arrears in three days.
Press 1 if this is correct.” When the person tried to say “what arrears?”, he was told that this is not a valid response.
The colleague then phoned the company only to find a robot answered the phone. At this stage you feel you are probably having an Orwellian nightmare.\
Will AI get “intelligent”?
There can be little doubt it will rapidly advance and predictions as to where it will go vary widely – some say that by the end of the next decade, robots will be as smart as humans.
Another school of thought maintains that as AI will not be able to learn creativity, real human emotion or have a human personality, so it will never replace humans.
AI relies on mountains of high quality data for it to be able to effectively run its algorithms. There is a relative dearth of this data at present.
Effectively, the sceptics say AI will always just be software and don’t be fooled by your robot declaring its love for you. It is software trying to mimic human behaviour.
It must also be remembered that there are many tasks that don’t need human intervention.
So, what happens to our jobs?
AI is one of the drivers of the fourth industrial revolution and it is instructive to look at the first three industrial revolutions to understand what we can learn.
The first one came in the late eighteenth century when man began mechanizing factories and agriculture.
Urbanisation began to develop rapidly (from displaced farm workers) and there was social unrest as many jobs were lost and professions weakened.
This led to substantial inequality of incomes as a few industrialists made fortunes, a middle class began to slowly emerge but the vast majority remained in poverty.
The second industrial revolution came a hundred years later and was led by inventions that made the ordinary person’s life much easier – electricity, the aeroplane, the washing machine, the vacuum cleaner and many more that created a surge in living standards.
Universal franchise and recognition of unions also came into existence in the developed world.
So significant were these changes, such as housewives spending 42 hours less a week on household chores, that they enabled women to enter the jobs market.
In turn, this rapidly grew the middle class and inequality decreased substantially.
Clearly, this second revolution grew employment and living standards.
Another important aspect is that the second industrial revolution was a work enabler whilst the first industrial revolution was a job replacer.
The third industrial revolution began in the 1980s with the rise of digitization and it has been similar in some areas to the first industrial revolution – the middle classes have regressed in the developed world whilst the top 1% has become wealthier.
However, in developing countries, mainly Asia, hundreds of millions of jobs have been created as industrialization has rapidly rolled out there.
The fourth industrial revolution is expected to automate just under half of the jobs in the United States and thus be similar to the third revolution.
How it will fare in places like China and India is difficult to predict. In South Africa, a business will benefit from the new technologies but the poorer communities will not have the skills to take advantage of opportunities offered by AI. Thus, inequality will continue and may get worse.
Overall, the last two hundred and fifty years has seen a massive upward change in the number of jobs created.
The problem lies in the uneven timing of these changes – it took three generations in the nineteenth century for there to be real progress in growing jobs.
Whilst AI may sometimes seem comical at the moment, it is going to reduce and/or eliminate many jobs.
But it will also create new employment opportunities.
As a business owner, upskill your workers so they can be prepared for the changes that are already happening.
Compliance requirements for businesses are becoming more onerous.
Small businesses in particular increasingly have to perform a balancing act between optimising their limited resources on the one hand and weighing up the consequences of non-compliance on the other.
Now we are faced with new accounting reporting standards – standards you should both know about and prepare for. We’ll focus on one particularly important one, the “Revenue from Contracts with Customers” requirement.
Another crucial development is a recent CIPC warning about non-compliance with disclosure requirements relating to remuneration of directors and prescribed officers.
Small business has limited resources and optimising these resources is a balancing act. Part of this balancing act includes the role of compliance.
These requirements have increased as new laws are rolled out along with other regulations, such as BEE and FICA, which also need to be considered.
One needs to carefully weigh up the consequences of not complying with laws or regulations. It is no excuse to say “I was not aware of that requirement” – the onus is on the business to take the time to understand what it needs to know.
Be aware that new standards have become effective in 2019.
The most important of these is “Revenue from Contracts with Customers”. This could be depending on your business, fundamentally alter the way your company recognises revenue (such as construction and telecommunication industries) and even if it does not, disclosure requirements in the notes to your Annual Financial Statements (AFS) may change.
These notes will have knock-on effects, for example, to bonus schemes tied to sales which may need to be altered. This will affect how you disclose remuneration in the AFS and could in turn impact how much additional tax your staff need to pay. In turn, this will change your PAYE (Pay as You Earn) and will roll through to the EMP 201 and EMP 501 (monthly and annual earnings declarations to SARS).
This is only one of several new standards, so speak to us to assess the effect on your business.
Banks and other financial institutions rely on your AFS to determine the health of your business. Not complying with these standards could result in an audit qualification, in turn resulting in a negative perception of your business by key stakeholders.
Whether you have recently started a new venture or have had a small business for a while don’t forget that SARS offers two types of favourable tax treatments for small entities:
- Turnover Tax on micro businesses
- Tax on Small Business Corporations (SBCs).
This is a tax on entities with a turnover of R1 million or less per annum. Tax rates are:
|TURNOVER TAX FOR MICRO BUSINESSES – NEW TAX TABLE
||New Turnover Tax Rates
|R0 – R335,000
|R335,001 – R500,000
||1% of taxable turnover over R335,000
|R500,001 – R750,000
||R1,650 + 2% of taxable turnover over R500,000
|R750,001 and above
||R6,650 + 3% of taxable turnover over R750,000
The maximum tax payable is R14,150 per annum assuming a turnover of R1 million. This is a very low amount – for example, assume the entity is a company and makes R200,000 taxable income, then it will pay R56,000 in income tax versus R14,150 above.
Turnover Tax businesses pay no other income taxes (such as Provisional Tax and Capital Gains Tax) but will need to collect and hand over Employee Tax, and VAT should the business entity choose to voluntarily register for VAT.
In terms of who may register for the tax the field is broad – companies, sole proprietors, partnerships, close corporations and cooperatives are eligible.
Another break is that these entities need only keep limited records as follows:
- Income received
- Dividends declared
- Any Asset over R10,000
- Any Liability over R10,000 at year end.
There are restrictions placed on the business, the main ones being:
- Owners cannot hold investments in other companies except listed entities and other public-interest entities such as bodies corporate;
- The business must have its year end on 28 February (to comply with SARS requirements in terms of dates when tax payments are to be made);
- If more than 20% of income received is from investments or professional services, the business will not qualify;
- NGOs, public benefit organisations and recreational clubs cannot apply;
- Labour brokers and personal service providers are also not eligible;
- The proceeds from the sale of capital assets cannot exceed R1.5 million in a three year period.
As soon as turnover exceeds R1 million in a business’ financial year, it must de-register as a Turnover Tax entity.
Turnover Tax is not that popular with organisations. Commentators have speculated this is due to:
- The SARS administration workload.
- Keeping only limited records reduces the business’ ability to analyse how well (or badly) it is doing. Having information is particularly important in the early stages of a business.
- A further important aspect is that with turnover tax you cannot deduct your expenses – so if your business is a loss-making one (as many start-ups are) or if its taxable income (revenue less expenses) is minimal, you could well pay more tax on the turnover tax basis than on the normal income tax basis. You cannot carry forward any losses you incur from one year into the next year as this is only a tax on turnover. Over time, this can negatively affect cash flow.
- To qualify for the Turnover Tax, you must register before the tax year starts and thus you need to weigh up carefully if Turnover Tax is best for your business.
Small Business Corporations
SBCs are one step up from Turnover Tax entities and must be:
- A company
- A close corporation
- A personal liability company or
- A cooperative.
Turnover cannot exceed R20 million a year and once taxable income goes above R550,000 the SBC becomes liable for the 28% corporate tax rate.
|SMALL BUSINESS CORPORATIONS – NEW TAX TABLE
||New SBC Tax Rates
|R0 – R79,000
|R79,001 – R365,000
||7% of taxable income over R79,000
|R365,001 – R550,000
||R20,020 + 21% of taxable income over R365,000
|R550,001 and above
||R58,870 + 28% of the amount over R550,000
These are attractive rates as a normal company would pay R154,000 when taxable income is R550,000 – so at that level, SBCs save just over R95,000 in tax.
The restrictions applicable to Turnover Tax (above) also largely apply to SBCs. Also, the company’s shares must be held by only “natural persons” (some trusts also qualify – take specific advice if applicable). Importantly all shareholders in an SBC may only hold shares in that one SBC and no other company, CC or co-operative (there are some exclusions including for listed share investments), otherwise it will be disqualified from the special tax regime.
In addition, SBCs qualify for accelerated tax depreciation – if plant or machinery is used in a process of manufacture then the whole cost can be written off in the first year of acquiring it. Other assets also qualify for faster tax write-offs.
As a rule of thumb, if choosing between the two tax regimes, SBC favours capital-intensive or low mark-up entities.
Both the Turnover Tax and SBC allowances can be attractive to small businesses, but the above is of necessity only a summary.
Contact us if you think your business may qualify for, and benefit from, either of these dispensations.
In a recent binding ruling, SARS confirmed it will allow the cost of solar power units.
The capital costs that may be deducted are:
- Photovoltaic solar panels;
- AC inverters;
- DC combiner boxes;
- Racking; and
- Cables and wiring.
In addition, related allowable costs of installation are:
- Installation planning expenses;
- Panels delivery costs;
- Installation expenses; and
- Installation safety officer costs.
If the solar unit per site generates less than 1 megawatt of power, the full cost is allowable in the year the plant was commissioned according to the ruling. If the equipment generates 1 megawatt or more energy, then 50% can be deducted in year one, 30% in year 2 and 20% in year 3. Note that if the company is an SBC (Small Business Corporation), the capital allowances under the SBC tax allowance regime (i.e. 50/30/20) must be claimed.
Remember the normal rules apply in terms of qualifying for a deduction – the plant must be owned by the taxpayer, it must be used for the purposes of trade by the taxpayer and the plant must be brought into first time use by the taxpayer.
This is good news for people tired of load shedding.
In a recent interview of a prosecutor, he expressed surprise that most of the people charged with commercial crime were normal and honest. Yet in a recent survey of a company, 41% of the staff had observed unethical behaviour over a twelve month period.
What causes this dichotomy?
Leadership giving a bad example
It is human nature for staff to hold management to a higher standard. This places an obligation on management to assess the effect of their actions on employees. For example, take a manager who is vying for a promotion and is aware that one of the selling activities he is responsible for is potentially resulting in product returns from customers. One of his staff has to write a monthly report on selling strategies and the report received by the manager indicates the need to investigate the selling strategy to establish if it is causing product returns. The sales manger faces two choices:
- Forward the report up the line knowing it may weaken his/her chances of promotion, or
- Say to the employee that as the reason for the product returns isn’t clear, let’s do our own investigation to verify if the strategy is the cause of product returns. Only then should we inform senior management.
If the manager chooses the second option, it tells the employee the manager is prepared to compromise on transparency and ethical behaviour. If the employee or other members of the manager’s staff then act dishonestly, it will be impossible for the manager to act since the manager is now effectively compromised.
Discouraging whistle-blowers and employees who speak up
If staff are aware of a culture where speaking out on unethical behaviour is either ignored by management or, worse, the staff member speaking up is victimised, then accountability essentially goes out of the window.
Speak to your staff often about the importance of ethical behaviour – not just when staff or management are caught out. It is important that staff are made aware that ethics is not a relative matter but often involves painful choices.
Setting unrealistic goals
If staff are measured on goals that are virtually impossible to achieve, then there is the likelihood they will cut corners or “fudge” the results. No one wants to be seen as a failure or underachiever, so set realistic goals.
Setting conflicting goals
Some goals can encourage staff to act dysfunctionally – if say management wants to see a growth in sales but also needs to cut marketing costs, then sales staff could decide to oversell to customers. In the short term, this will mean achieving sales targets but it will also lead to customers returning the excess stock, increasing administration costs and risking the potential for stock write-offs.
Staff see this situation as unfair and thus could think they are entitled to act in a way clearly against the interests of the business.
Think through the objectives you set for your staff and always act in a fair and transparent manner – in the long term it will be worthwhile. The last thing you want to do is to inadvertently encourage your employees to act in an illegal or unethical manner.