Monthly Compliance and Legislation Update for June 2019

This article is compiled with the assistance of Lettie Janse van Vuuren, technical advisor at the SA Accounting Academy, and Nicolaas van Wyk, CEO of the SA Institute of Business Accountants (Saiba)

Book your place at the Compliance and Legislation Update given by Lettie Janse van Vuuren on 19 June 2019 and earn two CPD hours.

Here are some of the key legislative and regulatory highlights for the month of June 2019 to be covered in the webinar on 19 June:

  • The Carbon Tax Act has been promulgated, with significant impacts for companies.
  • SAAPS 3: The Independent Regulatory Board for Auditors’ (IRBA) has published the South African Auditing Practice Statement (SAAPS 3) and called for comment. This lays out the proposed format for auditors reports and reflects revised auditor reporting standards issued by the International Auditing and Assurance Standards Board.
  • The revised Property Practitioners Bill 2019 replaces the Estate Agency Affairs Act and broadens the definition of “property practitioner” to include not just estate agents, but mortgage originators, rental agents, property inspectors, valuators, property managers and bond regulators. The aim of this broader definition is to regulate a wider spectrum of persons involved in the property industry and thereby protect consumers and provide for a more controlled structure in the property sector.
  • Financial Services Conduct Authority (FSCA) issues a R10,000 fine for a company that appointed auditors without first notifying the FSCA.


The Property Practitioners Bill

Apart from broadening the definition of “property practitioner” to cover a wider value chain involved in the property sector, the new Bill aims to encourage transformation by establishing a Transformation Fund to be administered by the Department of Human Settlements and the launching of incubation programmes to assist previously disadvantaged Property Practitioners.

The Estate Agency Board is replaced by the Property Practitioners Regulatory Authority, with complaints to be heard by an Ombud.

From Bouwers: In terms of the current Act, estate agents that don’t have a Fidelity Fund Certificate are not allowed to earn commission from any estate agency services. The Bill takes this requirement further by requiring that a Property Practitioner will have to refund the person who paid them if demanded should they not possess a valid Fidelity Fund Certificate. Furthermore, the Bill provides for a broad list of disqualifications from obtaining a Fidelity Fund Certificate, two of the more restrictive disqualifications being where a Property Practitioner is not in possession of a valid BEE certificate or is not in possession of a valid tax clearance certificate.



The new reporting standards of SAAPS 3

In terms of the South African Auditing Practice Statement (SAAPS 3) recently issued by IRBA includes:

  • Unmodified opinions
  • Disclaimer of opinion and report on other legal and regulatory requirements – Going concern and reportable irregularity
  • Disclaimer of opinion on the financial performance and cash flows and qualified opinion on the financial position
  • Independent Reviewer’s Report, setting out the responsibility of directors fort the preparation and fairness of the financial statements, and the limited assurance of the statements provided by the independent reviewer.

The Committee for Auditor Ethics (CFAE), IRBA statutory committee responsible for setting standards for auditor ethics, which become effective on 15 June 2019.

SAAPS 3 sets  out suggested wording to accompany the different types of audit opinion.


Carbon Tax Act becomes law

The Carbon Tax Act into law and it will come into effect on 1 June 2019 in order to reduce the impact of climate change following the polluter-must-pay-principle, taxing greenhouse gas (GHG) emissions. The policy behind the introduction of carbon taxes is to ensure an environmentally sustainable economic growth path for South Africa and adherence to the Paris Agreement to reduce GHG emissions. The initial carbon tax rate is set at R120 per ton of CO2e, discounted to R48 per ton of CO2e given various tax-free allowances.

From Saica: “Businesses and consumers will feel the impact in their pocket, having to account for R1.8 billion in carbon tax as estimated by National Treasury in the 2019 Budget Review. But how?” writes Madelein Grobler, SAICA Project Director: Tax.

Carbon Tax impact on big business

Adds Grobler: “Eskom comes first to mind being impacted by Carbon Tax, having the largest carbon dioxide footprint of 205.5 million tonnes per its 2018 Integrated Report. National Treasury, however, has rolled out substantial relief in Phase 1 (until December 2022) for the electricity giant, due to the tax credit for the renewable energy premium built into the electricity tariffs and a credit for the existing electricity generation levy.

Currently, Eskom is paying 3.5 cents per kilowatt-hour, as an environmental levy on electricity generated from coal, nuclear and petroleum sources (i.e. non-renewable energy) that would serve as a “carbon tax credit”.

South Africans can therefore breathe a sigh of relief for now in that the electricity price will probably not increase. However, the inevitable is only postponed, as consumers will fit the carbon tax bill in future, similar to the current environmental levy being recovered through sales.  Other energy-intensive sectors such as mining, iron and steel will also benefit initially from Phase 1 as no additional production costs will arise with the electricity price staying the same.

The other industry coming to mind is the petroleum and fossil industry. In this regard, Sasol’s preliminary estimates show that the impact of the tax can range between about R7 million and R2 billion pre-tax from the 2019 financial year. How and if these additional taxes will filter through towards consumers remains to be seen.

Carbon Tax hits the consumer with 10c/litre increase in diesel

However, it is certain that South Africans will feel it in their monthly budgets with immediate effect on 5 June 2019, when the petrol price increase with 9c/litre and diesel with 10c/litre as noted in the 2019 Budget Review, at the fuel stations nationwide. The carbon tax will be included in the fuel tax regime given the mobile emissions that results from the use of liquid fuels (i.e. petrol and diesel) . The additional carbon tax will also trickle down into cost of living everyday (i.e. food prices, cost of goods, online deliveries, etc.) considering the most things in South Africa is transported by road.

Small to Medium Enterprises may have to hire consultants to assess carbon tax

Small to Medium Enterprises (SMEs) will have an administrative task at hand in determining whether they would fall within the ambit of mandatory reporting to the Department of Environmental Affairs (DEA) as they may conduct activities emitting GHG and furthermore have a carbon tax liability.

SMEs likely to be influenced by the above would be the industrial and manufacturing facilities who have process emissions due to chemically or physically transforming material, for example steel and cement. These SMEs will be impacted by carbon tax, as there is no threshold.

Furthermore, those SMEs that have extremely high energy-intense businesses may also be impacted if their stationary combustion equipment (like diesel generators) generate heat or electricity. Important to note is that the threshold for combustion emissions is the totalled installed capacity of the equipment rather than actual emissions.

SMEs may be set back by between R5 000 to R50 000 (complex matters) in consulting fees where they utilise advisory consultants to determine their installed capacity and thresholds. This fee would however include the mandatory report preparation and submission, where SMEs are required to submit to the DEA. In addition to the mandatory reporting, SMEs may be set back a further consulting fee5 of R20 000 to R50 000 where such SMEs are liable to pay carbon tax (including the tax fee allowances) and submit a return. Remember, the SMEs still need to pay their carbon tax liability.

The above consulting fees do, however, not take into account the practical and administrative burden in registering for Customs and Excise through which the carbon tax will be administered by SARS.

Consumers will feel the brunt again when SMEs filter through the possible additional consultancy fees and carbon tax through their pricing.

Micro Businesses least affected by carbon tax

Micro businesses would most likely fall under the carbon tax capacity threshold and not be liable for carbon tax. Hence only indirect costs will filter through due to the introduction of carbon tax at fuel stations and big corporates and SMEs’ carbon tax liabilities.

South Africa’s GHG emissions are expected to peak between 2020 and 2025, level for a decade and only after that decline.  Therefore, South Africans are in carbon taxes for the long run to ensure a better future for those still to come,” concludes Grobler.


Book your place at the Compliance and Legislation Update given by Lettie Janse van Vuuren on 19 June 2019 and earn two CPD hours.

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