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May 30, 2006

Tips for Trevor: The Skills Disincentive Project

South Africa has a dire shortage of experienced people in the technical, IT and engineering fields. With the country approaching last place in Africa for the quality and cost effectiveness of its communications infrastructure, it makes sense to go for broke and simply be the most undeveloped country in the world.

Countries like the Netherlands offer significant tax discounts and readily available work permits in an effort to attract professional skills to that country, and these efforts are very successful. What if South Africa did the exact opposite: A tax disincentive program that penalises professionals wanting to build technology startups in the country? I think that just might work. Last place here we come.

So here's what I suggest be done.

With professionals there is a trend to form startup companies that use consulting income to fund the operations of the company. As a company the professional has a greater likelihood of attracting larger clients as customers with a corresponding increase in turnover, and this additional budget helps junior interns get hired and gain valuable experience. All of these serve to increase the pool of skills available to the country, which is exactly what we are trying to avoid. How can this be prevented?

The proposed solution is really simple - pass tax legislation that forces the consultant's clients to treat the consulting company as a normal employee. If clients were to deduct Pay As You Earn from the company's invoices, the resulting drop in turnover could kill the company. There would be no budget to pay for interns or skills development, and consultants would be driven to seek opportunities elsewhere.

This solution does have one small snag: The money accumulated as Pay As You Earn will be claimed back in the tax return at the end of the company's tax year, however there is a big advantage to this. As the company could not spend the money withheld, this money will be declared profit, and will therefore be taxed at the ruling rate. So not only are consulting companies withheld their full amount due, but they will lose a percentage of that money to tax for the betterment of tax collection.

As the final nail in the coffin, if a way was found to tax such companies at a higher rate than other companies, say at a premium of 5% over and above normal tax obligations, it would be even better.

Anybody wanting to run any kind of professional consulting business in an environment like that would be certifiably crazy to do so.

How would a government get away with a policy like this one? Surely such a policy will come under critical fire from those affected? One very viable solution to this problem would be to offer special exemption certificates to qualifying companies. Then add hidden requirements, ensuring that virtually nobody qualifies. A great criterion to base the exemption on is to exclude all contracts where a particular consultant is specified by name. As no client would be stupid enough not to specify the consultant by name in the contract (leaving the consulting company able to swap out consultants at will taking their project knowledge with them) that pretty much ensures as few companies qualify as possible.

Now that's foolproof.

Oh dear, I do believe the South African Treasury have already had this idea, and have been implementing it since around 2000.

And there I thought I was being original.

May 5, 2006

Newsflash: Reveal is a Verb

Just so we're clear. Mike Myers is the only person who has ever been in television who is allowed to invent new words or expressions.

No Mr Extreme Makeover, you reveal your participants, you don't present your participants at a reveal.

And this counts for all you television wannabes as well.

When a corporate bank decides to launch their new branding campaign via a private satellite broadcast to all their branches courtesy of broadcaster Multichoice, there was their new slogan launched at "the big reveal".

It was cringeworthy stuff.

Ok, so "reveal" is also a noun. It means "door jamb" apparently. So it's ok then. Not.