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RELATIONS WITH SARS PROMISE TO IMPROVE THROUGH NEW TAX OMBUD
While South Africa has the unfortunate distinction of being one of the top countries in the world where fraud and corruption are rampant, it is also one of the few countries in the world where the public is very protected against this once they are able to prove that they have fallen prey to it. Government has taken a further step in improving this protection through the establishment of the office of the Tax Ombud.
Like the various other Ombudman in the country, the purpose of the Tax Ombud is to improve the relationship between the public and the South African Revenue Service (SARS) by offering an effective conflict resolution channel between the two parties. Retired High Court judge Bernard Ngoepe was appointed as the first Tax Ombud and will serve a three year renewable term.
Ombud powers
The office of the Tax Ombud has legislative backing and was established following the directives of sections 14 to 21 of the Tax Administration Act (TAAct) of 2011.
The TAAct amalgamates, integrates and streamlines the administrative provisions of tax laws in order to decrease the administrative burden and compliance costs borne by taxpayers and SARS. The act seeks to promote a better balance between the powers and duties of SARS and the rights and obligations of taxpayers. The Ombud was established to be an independent, impartial and objective redress channel for aggrieved taxpayers to approach for help to resolve matters relating to service, procedure and administration.
Ngoepe points out that the Tax Ombud will have a close relationship with the Commissioner of SARS as well as Finance Minister Pravin Gordhan. Ngoepe will also be expected to submit quarterly reports to Gordhan outlining the health of the industry as well as any issues which it has picked up.
However, if you are expecting the Tax Ombud to make decisions which compels SARS to take a particular course of action, you are out of luck. Ngoepe points out that the business model of the Ombud is based on the duties and powers of the Canadian Tax Ombud and the UK's Her Majesty's Tax and Customs. The Tax Ombud will therefore have limited powers and can only advise SARS on an appropriate course of action. It cannot make decisions which are recommendations to SARS and tax payers. These decisions are not binding.
"If SARS chooses not to accept a decision made by the Ombud, this will be included in the quarterly report which the Ombud submits to the minister. So we are assuming that SARS won't ignore to many recommendations made by the Ombud," says Ngoepe. Respected tax industry analyst Dr Beric Croome adds further ....
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FAIS OMBUD PERFORMS ADMIRABLY DURING A TOUGH YEAR FOR THE INDUSTRY
The financial services industry plays an important role in the country. It offers necessary cover for assets which the South African population feel need to be covered in order for their families to maintain their quality of life should unforeseen circumstances occur. Because of the complex nature of the industry, guidance is needed. The role of the broker is important in this instance, but what happens when the trust between broker and client is broken? The office of the FAIS Ombud (Ombud) offers a necessary platform for recourse, even during these current tough operating conditions.
The financial services industry is one of the industries which falls prey to this quite frequently. We have recently highlighted two determinations made by the Ombud whereby unsuspecting members of the public were scammed out of money by unscrupulous brokers. But what is the true state of the industry?
On the rise
According to the latest annual FAIS Ombud report, which was released on November 1 2013, the number of new complaints for the 2012/13 year was 9 949. This is an increase of 1 128 complaints from those which were recorded in the 2011/12 year. Of these complaints, 2 577 complaints were dismissed, 4 366 complaints were referred, 955 complaints were settled while 2 051 cases will be carried over to be dealt with in the 2013/14 year.
Predictably, the short-term industry is the industry which received the most complaints (27.38%) while the long-term industry was second with 25.35% and the investment industry third with 23.14% of the complaints. The medical scheme and retirement industries fared the best with 1.59% of complaints and 4.18% of complaints respectively.
An area of concern is the fact that the Ombud had to handle 33 determinations during the period under review, which is an increase from the 25 determinations which was handled in 2011/2012. In fact, 2012/2013 was the second highest period since 2009/10 where 91 determinations were recorded.
Achieving objectives
Settling 7 938 cases during the period under review is no mean feat, and suggests that the Ombud was busy and has identified the fact that the effective resolution of these cases would be a priority.
The chairperson of the Financial Services Board, Abel Sithole, points out that the office of the FAIS Ombud has set itself a target to close cases for adjudication within nine months of receiving them. While this represents a significant milestone, it does not provide a holistic picture of the offices' achievements. He adds that these achievements can be appreciated by looking at the nature and effect of the adjudicators in terms of the way they approach and resolve cases.
Finance Minister Pravin Gordhan adds his weight behind the FAIS Ombud by pointing out that financial protection, such as that offered by the Ombud, is a vital component in the country, realising the ambitions set out by the National Development Plan.
"In addition to providing assistance to members of the public through an expeditious dispute resolution process, the FAIS Ombud also assists those consumers who have fallen victim to financial schemes perpetuated by unscrupulous financial service providers. Complaints relating to commercial crime fraud are increasing and the Ombud has become inundated with complaints arising from collapsed, fraudulent investment schemes, chief amongst which have been property syndication schemes," says Gordhan.
Of concern though, is the fact that there are complaints being directed towards the Ombud regarding its independence and its impartiality. This was highlighted during the case between Deeb Risk and Others vs the Office of the Ombud and Others.
The accusations levelled against the Ombud were based on the grounds that the Ombud:|
- is neither independent nor impartial;
- the adjudicator from the Ombud is appointed by the FSB and the Ombud serves at the pleasure of the FSB;
- the Ombud does not have the independence of a High Court Judge or even a Magistrate, and;
- the Ombud has a close relationship with the FSB.
However, it is important to remember that the FSB is the industry regulator, so the Ombud will naturally be governed by the FSB. There will also be a natural ....
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WHAT YOU NEED TO KNOW ABOUT MONEY MARKET FUNDS
Money market funds made headlines as investors rushed to pull cash from them amid the US government's debt ceiling drama that gained momentum in Washington these past few weeks.
Recently, assets fell by a net $9.44 billion due to a sharp decline in government taxable funds, leaving total assets in money market funds at $2.65 trillion, as more and more investors saw money market funds as an unsafe investment environment.
With that said, however, fund managers around the globe expect the money to come back into the funds now that a deal to temporarily raise national treasury's debt limit was reached.
According to EPFR Global, more than $20 billion did indeed come back into the money-market funds. They expect these numbers to increase.
It is a relief to say the least, as EPFR Global also said that the outflow of cash from money market funds during the past week was the second biggest outflow since 2007, which sketched a very dim picture for the year ahead.
Moving forward with optimism
Despite of the above, optimistic industry role players like Sean Neethling, credit analyst at independent asset management company RE:CM, believes that money market funds will continue to be popular with local investors.
The basic principles of money market funds remain the same - like the good combination of yield, liquidity and capital preservation they provide. They pool investor funds, and as such provide higher yields than those accessible to individuals through conventional retail banking deposits.
Overall, with holdings spread across banks, government, and shorter dated corporate bonds, money market funds can be seen as a relatively 'lower' risk investment vehicle than their bond and stock counterparts.
"The truth of the matter is that these funds allow investors greater flexibility from a liquidity perspective because they can be designed to meet clients' liquidity requirements, while portfolio allocation can [and should] be based on client-specific, short term access to cash needs. As such, money market funds can still be seen as the ideal vehicle for investors who want to preserve capital while earning a low risk competitive return, and have overnight access to their money," he says.
The cons of money market investing
Money market investing does have a negative side, like the fact that they are unlikely to generate real returns for investors as they tend to carry single-digit returns. (But this can still be an attractive investment when the market is down.)
Other smaller and less significant risks than the US government scare that played out during the past few weeks include:
- when the currency that money market funds earn do not keep up with the rising cost of living
- when expenses like annual fees eat up a chunk of the final profit - making it difficult for investors to keep pace with inflation
The effect of recent reforms on money market funds
According to Neethling, the CISCA (Collective Investment Schemes Control Act) introduced in July 2012 have had little effect on money market funds to date. "The rules do allow fund managers to increase the weighted average portfolio maturity to 120 days and invest in individual instruments with a maximum maturity of 13 months. Longer dated instruments provide fund managers with ....
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