One of the most time-consuming aspects of running any business – and your route is indeed a business – is complying with legal regulations. These regulations relate to company law, tax law, labour law, municipal bylaws and many others.

Although it takes time, your route needs to comply with these laws so that you can avoid the risk of prosecution or even closure. Compliance also puts you in a good position with large customers such as government and big business. Without a Tax Clearance Certificate, for instance, most large organisations will not do business with you. You can only get a TCC if you have complied with your financial and tax obligations.

If you do not comply, the risk is a fine, disruption of your business or even a jail term.

This Guide will explain the main areas of regulation that affect your route, and how to comply with them. They are:

• Registering your route as a legal entity
• Tax registration
• Labour regulations
• Sector-related regulations
• Municipal regulations
• Consumer rights
• Liquor laws

Why is compliance important?

The route needs to comply with the law to stay legal, but compliance also helps the organisation to run smoothly. By complying you will also become more professional in the way you work, and more respectable in the eyes of the public. This will bring more customers in the long run and will help to give them a good experience that they will tell others about.

Most routes deal with local or provincial government as important stakeholders, and this is another important reason why your route needs to comply with all legal requirements. It puts you on a level that government stakeholders can see is professional and deserving of any support they can offer. For example, if you want to apply for funding from any government department or agency, you will need to have the necessary tax clearance and status as a registered nonprofit organisation.

What is compliance?

Compliance affects almost all aspect of your operations. Company law says how you must manage your finances and keep records. Tax law says how much tax you must pay, and when you must submit returns. Labour law says how you must deal with staff. Municipal bylaws say which licences and permissions you must have before you can trade.

So it is easy to see how complying with the law will affect almost all the things that your organisation does – from money matters and taxation to employing people and everyday operations. These compliance issues will therefore be important to remember when you read Guides about finance, tax, human resources and operations.

Registering your route as a legal entity

After finalising a constitution, many routes have decided to register as a legal entity. This raises your status and can be very helpful when raising money or dealing with authorities. There are a number of options available for registering an enterprise, but the most common for an Open Africa route are: voluntary associations; nonprofit organisations and co-operatives. You can also register as a (profit-making) company.

The Mothers of Creation Route in the Western Cape registered as a voluntary association in 2006. This allowed them to qualify as a legal entity so they could start applying for funding. They managed to raise R300 000 from the National Lottery Fund to take on a number of projects.

In the Northern Cape, the Richtersveld Route identified its municipality as one of the organisations that could help them.  After a few initial meetings, it was suggested that if the route was registered as a legal entity, it would be able to register as a service provider for the municipality. This was done, and the route now has a mutually beneficial relationship with the municipality, providing it with services in exchange for support in setting up route meetings and ensuring that people have transport to attend these meetings.

Tax registration

Every year, your route will have to submit its financial documents to an accountant or auditor so that an annual financial statement (AFS) can be prepared. This is vital, since you will need to give this to the SA Revenue Services to remain tax compliant. Only if SARS gets your AFS, and is happy with it, can you get a Tax Clearance Certificate, which allows you to do business with government, large corporations and many other institutions.

Even though most routes are nonprofit organisations, SARS still needs you to register as a taxpaying organisation and get a tax number. This will also be necessary if you employ staff at some stage, since you will need to be registered with SARS as an employer and must submit Pay as you earn (PAYE or income tax) to SARS on behalf of your staff.

But it does not necessarily mean that you will actually pay tax as an organisation. If you are registered as a business, for instance, SARS allows small business to earn a certain profit before it has to pay tax. And if you are registered as a non-profit organisation, your surplus funds can be ploughed back into your work without being taxed.

You can also apply to the SARS Tax Exemption Unit to be recognised as public benefit organisation (PBO), which allows you to be exempt from tax. More information on this can be found at www.sars.gov.za or by phoning the SARS contact centre at 0800 00 7277.

PAYE tax: If you employ staff, you may have to deduct tax from their salaries if they earn above the tax threshold. Again, you can ask SARS whether this applies to you.

Value-added tax (VAT): Businesses must register for VAT if their turnover is above R1 million per year. You can register voluntarily, but VAT does involve some extra administration.

Labour regulations

One of the most difficult things for any organisation is to manage its employees fairly and efficiently. Part of this challenge is compliance with labour laws; the main ones are: the Basic Conditions of Employment Act; the Labour Relations Act; and the Occupational Health and Safety Act. A good resource is www.labour.gov.za, which has guides that explain how to comply.

The Basic Conditions of Employment Act provides the minimum conditions for employing anyone. It also governs conditions such as working hours, overtime, sick leave, maternity leave, annual leave, family responsibility leave and termination of employment, among others.

When taking on a new employee, for instance, you must record certain particulars in writing, such as a job description, date of employment, and wage or rate of remuneration. You must also keep records of employment of your employees, showing how long they have worked for you and what they have been paid each week or each month.

The Labour Relations Act protects the rights of employees and explains what an employer must do before they can lawfully dismiss an employee. The Act also governs things such as unfair discrimination in the job application stage, the right to strike, access to information for trade unions, and unfair conduct in the workplace.

As an employer, you need to know how the dispute and dismissal process works so that you can follow the correct procedures. Unfair process is often the main reason for the Commission for Conciliation Mediation and Arbitration (CCMA) ruling in an employee’s favour when an employer finds themselves before the commission. The CCMA is a dispute resolution body established in terms of this law; for more information, visit www.ccma.org.za.

The Occupational Health and Safety Act demands that employers provide a safe and risk-free environment to employees. Although each industry sector also has its own set of regulations governing health and safety, the Occupational Health and Safety Acts sets out the general conditions and regulations for a clean and safe workplace, including: having an employee on site trained in first-aid, what to include in a first-aid box, and suitable fire exits and firefighting equipment.

Then there is Unemployment Insurance: Any organisation that employs a person for longer than 24 hours in a month must register them with the Unemployment Insurance Fund (UIF) at the Department of Labour. The fund pays out to employees who become unemployed as a result of termination of employment or an illness. The UIF contribution is 2% of an employee’s salary; half is contributed by the employee, and half by the employer. Deductions must be paid over to SARS.

Sector regulations

Every industry sector has its own regulations in addition to the general regulations listed above. In the tourism sector, provinces usually publish their own regulations to register and monitor tourism establishments and tourism operators. Talk to other Open Africa routes in your province if you are not familiar with these regulations. The tourism association in your area should also know more about this.

Municipal regulations

When starting a new enterprise, talk to your municipality to see if there are any regulations you need to know about. If you plan on setting up a new building for your business premises, for example, you may need to be approved for zoning and inspected by health and fire officials from the municipality.

Consumer rights

All organisations now have to pay more attention to the rights of consumers. The Consumer Protection Act (CPA) prohibits certain marketing practices and has rules on how to deal with customers. Operating in a customer-focused sector such as tourism, the route and its members need to be especially careful.

There are standards to be met when it comes to reservations and cancellations and marketers must make sure they do not mislead consumers in any way. The law also deals with deposits paid, the displaying of prices, the use of vouchers, and the importance of quality service.

Liquor laws

Many tourism operators want to serve liquor on their premises; this requires a licence that is issued by the liquor board in each province.

Who is involved with compliance

The functionaries within a route will need to ensure that the route is fully compliant with the laws that apply to it so that it can engage as a full and respectable partner with stakeholders like local businesses, municipalities and larger funding agencies. But it should not stop there: each route member should be looking at improving their compliance levels, so that there is no risk of legal or other problems affecting or bringing down their operations.

How to apply compliance to the route

It is vital that all route members recognise the importance of being fully compliant, since the route is only as strong as its weakest member. The route’s reputation can be damaged if a few members are guilty of treating customers or staff badly, evading tax or of trading without the necessary licenses.

The route needs to take an active role in ensuring that all its members are aware of laws they must comply with and how they should do it. Sharing information and experience between members is a great way to tackle this sometimes difficult task. Arrange a series of workshops to tackle each matter in detail and get a member who knows his or her way through this issue to lead the discussion.

Also consider bringing in experts to help members become compliant; some government agencies such as SARS may even send a representative to your meeting to share information and answer questions.

Open Africa emphasises that success can only come from commitment and professionalism, both of which are vital in the tourism sector. Compliance will help every member of every route to improve their systems and get better at what they do. This is how a successful route is built – on the success of each of its members.

Practical tips

• Start early with implementing systems for the organisation that will administer your route. Don’t wait until you start growing. It is easier to grow when there are systems in place. So get registered with SARS after you have registered as a legal entity and ask them what regulations apply to you at that stage.
• Keep good financial records of all your transactions. Keep your bank statements safe and check them each month against your invoices and proof of payments.
• Talk to the municipality early on to make sure that you can operate from the house or building you have in mind; there may be bylaws that apply.
• Make your applications (for registrations, permissions and licences) as early as you can; they may take longer than you expect.

Use of this Guide

The Route Forum can use this Guide – particularly the administration and financial portfolios on the Route Forum – to check whether there are any important compliance issues outstanding. This Guide also provides the Route Forum with some guidance on how to deal with these.

Route members can also use this information in their own businesses, because all enterprises must comply with most or all of the issues herein.

Remember that the Open Africa Charter emphasises “integrity, honesty and complete transparency in maintaining impeccable credibility” as one of its core values. It is much easier to ensure this transparency and credibility when you have compliance systems in place; it also simply makes your enterprise less risky and more sustainable.

Other Guides

Several Guides will help make your route more compliant. These include:

• Guide: How And When To Register For Tax
• Guide: How To Develop And Manage A Route Budget
• Guide: How To Open A Route Bank Account
• Guide: How To Adopt A Constitution As A Voluntary Association
• Resource: Template: Constitution Of A Voluntary Association

Other resources and contacts

The SME Toolkit is a useful website to find information on running a small enterprise. Try the section on Best Practice and Compliance at http://southafrica.smetoolkit.org/sa/en/category/3020/Best-Practice-Compliance

SARS
Tel: 0800 00 72 77
Fax: 012 670 6880
Website: www.sars.gov.za

Department of Labour

Website:  www.labour.gov.za/contact/center_offices_display.jsp.

Tel: 012 309 4000
Fax: 012 320 2059
Website: www.labour.gov.za

The Companies and Intellectual Property Commission (CIPC)

Tel: 086 100 2472
Fax: 086 517 7224
E-mail: info@cipc.co.za
Website: www.cipc.co.za

Most routes will operate as voluntary associations, nonprofit companies or co-operatives, getting their income from grants, sponsorships and member contributions. They do not aim to make a profit and any surpluses that may be generated from their work will be ploughed back into the organisation to serve its members.

As nonprofit organisations, routes can get special treatment when it comes to paying tax, but this is not automatic.

This Guide will explain the different kinds of tax that routes are required to pay and how to register for tax in order to remain compliant with our taxation laws.

The main message of the Guide is that all routes need to register as taxpayers with the SA Revenue Services (SARS) as soon as they are legally established, so that they can begin the process of getting any special treatment they may be entitled to. Even if the route does not end up paying income tax for its own operations, it must still talk to SARS about the income tax of its employees.

Why registering for tax is important

The Income Tax Act demands that Corporate Income Tax (or ‘business tax’) is paid by businesses incorporated under SA’s laws and which derive income from within the country. This business tax is applicable but not limited to a range of business forms including private companies, close corporations, co-operatives and public benefit companies. The usual rate of business tax is 28%, but small businesses are given a certain gross income threshold below which they don’t pay tax.

It is against the law not to be registered for tax, and fines can be levied for trading without being tax registered or not submitting an annual tax return.

In addition to registering your organisation with SARS, you also need to be registered as an employer if you have staff earning a regular salary within your organisation. This is because SARS relies on employers to deduct income tax from employees and to pay that income to SARS on the employee’s behalf. Failure to do this is also against the law.

The route may also want to register as a value-add tax (VAT) vendor, so that it can claim back the VAT that it spends on supplies and other purchases, but this does require more paperwork and means that the route must charge VAT on all services or products that it sells.

How and when the route must register for tax

As soon as the route is registered contact SARS to find out the easiest way to register the organisation as a taxpayer. The SARS helpline can give guidance on this, and the website (www.sars.gov.za) is also helpful; or you can go to the nearest SARS office in your city or town, and they will help you with the paperwork.

This will include registering as an employer if there are staff members in the organisation; the route will usually have to deduct income tax (pay as you earn tax or PAYE) and pay this to SARS every month. Remember that you will also need to be registered with the Department of Labour as an employer and must pay Unemployment Insurance Fund (UIF) contributions to the department every month.

Public benefit organisations

SARS is allowed to give preferential tax treatment to nonprofit organisations, but this has to be applied for and certain conditions have to be met. An organisation will only enjoy preferential tax treatment after it has applied for and been granted approval as a public benefit organisation (PBO) by SARS’s tax exemption unit (TEU).

The conditions and requirements for an organisation to be approved as a PBO are contained in section 30 of the Act, while the rules governing the preferential tax treatment of PBOs are contained in section 10(1)(cN). Section 10(1)(cN) provides for the exemption from normal tax of certain receipts and accruals of approved PBOs. Certain receipts and accruals from trading or business activities will nevertheless be taxable.

So the next step after registration is to apply to SARS for PBO status. If the exemption application is approved, the route can be registered as a PBO and allocated a unique PBO reference number.

Approved PBOs have the privilege and responsibility of spending public funds, which they derive from donations or grants in the public interest on a tax-free basis. The donations or grants may be received from the general public or directly or indirectly from the State. It is therefore important to ensure that exempt organisations use their funds responsibly and solely for their stated objectives without any personal gain being enjoyed by any person, including the founders and the fiduciaries.

Approved PBOs must continue to comply with the Act and related legislation throughout their existence. This includes the submission of annual income tax returns on an IT12EI form. The income tax return enables the Commissioner to assess whether the approved PBO is operating within the prescribed limits of the relevant approval granted and to determine whether the partial taxation principles must be applied to receipts and accruals derived from a trading activity or business undertaking that does not qualify for exemption.

Submitting annual tax returns

Every registered taxpayer is required to submit a return of income 12 months after the end of the financial year. Returns can be submitted electronically via e-filing or manually at a SARS branch where the taxpayer is registered.

In addition to annual returns, every business is required to submit provisional tax returns. These returns are required to be submitted every six months and must contain estimated figures of total revenue earned for that period and to pay over taxes in respect of the income estimated for that period.

The first provisional tax payment must be made within six months from the beginning of the year of assessment, the second payment must be made on or before the last day of the year of assessment, and the third payment must be made seven months after the year of assessment for taxpayers with the end February year-end and six months after year of assessment for all other cases.

Who is involved in paying tax

The finance manager of the Route Forum, together with the Administrator, will usually be the ones to deal with SARS on tax-related matters, such as preparing the annual returns and the monthly PAYE payments.

How tax applies to the route

While most routes should be able to qualify as PBOs and avoid paying any tax, the experience that the Route Forum has in dealing with SARS should be regarded as valuable expertise to share with members. Many small businesses – route members included – are nervous of dealing with SARS for fear of losing out financially in some way. The Route Forum or office could use its knowledge of tax matters to help fellow members to become compliant and thereby get better access to business opportunities.

In the Guide on how to remain compliant the importance of the Tax Clearance Certificate from SARS is emphasised; this certificate confirms that a business is financially checked by an accountant and is up to date with its taxes (many small businesses will in fact not have to pay tax if their profits are not very high). Most government agencies and departments will only do business with entities that hold this certificate, so it is a valuable tool for generating new business.

Open Africa emphasises that success can only come from commitment and professionalism – both of which are vital in the tourism sector. Being tax compliant will help every member of every route to improve their systems and get better at what they do. This is how a successful route is built – on the success of each of its members.

Practical tips

• Don’t delay when dealing with SARS; rather talk to it as soon as the route is registered, so that you are clear about what you have to do.
• Keep all your tax-related forms and information safely in lever-arch files; then, if you ever have a query, you can take everything to SARS (or to your tax advisor) in an organised fashion.
• Have a look at all the online tools that SARS has put in place to allow e-filing; doing things online can save time and perhaps even unnecessary travelling and waiting in queues at the SARS office.
• The Route Forum can consider facilitating a tax advisor to serve all members at a reduced rate, especially if the route is far from the nearest towns, an advisor would not mind doing some travelling if they could see five clients in one trip rather than just one client.

Use of this Guide

The Route Forum can use this Guide – particularly the administration and financial portfolios on the forum – to check whether it is compliant with tax law. This Guide also gives the forum some guidance on how to deal with these. Route members can also use this information in their own businesses, because all enterprises must be registered with SARS.

Remember that the Open Africa Charter emphasises “integrity, honesty and complete transparency in maintaining impeccable credibility” as one of its core values. Being registered for tax is an important part of being transparent and credible; it also simply makes your enterprise less risky and more sustainable.

Other Guides

These other Guides are relevant to the issues of tax and compliance:

• Guide: How To Serve As Route Treasurer
• Guide: How To Remain Compliant With The Law
• Guide: How To Open A Route Bank Account
• Guide: How to Develop And Manage A Route Budget

Contacts and other support

SARS collects taxation revenue from businesses and individuals, giving government the money it needs to keep the infrastructure of the country in good shape. Businesses must register with SARS when they set up, and pay tax regularly on their profits and on behalf of employees.
Tel: 0800 00 72 77
Fax: 012 670 6880
Website: www.sars.gov.za

The Department of Labour ensures that the relationship between employers and employees is fair and that employees are protected by the law. There are a number of useful guides on the department’s website that explain what you need to do to comply with labour laws. To find the department’s office closest to you, go to www.labour.gov.za/contact/center_offices_display.jsp.
Tel: 012 309 4000
Fax: 012 320 2059
Website: www.labour.gov.za

The Companies and Intellectual Property Commission registers companies, trusts, patents, designs and trademarks. (The CIPC has taken over the role of the Companies and Intellectual Property Registration Office or Cipro).

Tel: 086 100 2472
Fax: 086 517 7224
E-mail: info@cipc.co.za
Website: www.cipc.co.za