Taxman guns for the rich
The SA Revenue Service is looking closely at about 38 000 individuals with a net asset value of more than $1 million each, who may have multiple income sources and complex offshore financial setups, to expose any tax-dodging taking place.
Spotlight turns on tax dodgers who derive income from complex sources.
With about 38 400 individuals with a net asset value of more than a $1 million (about R14.7 million) as well as their complex tax structure, the South African Revenue Service (Sars) is shining a strong spotlight in their direction.
And, say experts, the establishment of a dedicated unit within Sars for this class of taxpayer was long overdue.
Jean-Louis Nel, tax attorney at Tax Consulting SA, said in 2017, when Sars started investigating these high net wealth individuals, the receiver was able to recover an additional R184 million.
“So it completely makes sense for Sars to take this step. The definition of high net wealth, according to the Wealth Report, is that you have asset turnover of more than $1 million but Sars has expanded the definition to include individuals who earn over R3 million,” he said.
According to Nel, since South Africa is the largest wealth market in Africa and ranked 32ndlargest in the world, it would make sense that Sars would start scrutinising the high net individuals because they often have very complex tax structures.
He said they also had interests in various foreign markets and considering SA’s membership of G20 countries, specifically the common reporting standards, SA was obligated to share information with other tax jurisdictions.
Nel said the unit, High Wealth Individual Taxpayer Segment, will be crucial in compiling reports before a taxpayer was audited. They will be working with specialised auditors who deal with this type of tax to assist with effective collection.
“When a high net individual files their tax return they declare 70% of their income and the other 30% is in another country and is not declared. Now, Sars will only get notice of this once they do an audit. By proceeding beforehand, they can say ‘we know you have this in country X’ and they file their report. They will be able to see that country X is not in the returns and they can raise this immediately and the process is carried forward,” he said.
The specialised unit will be co-located within the large business and international taxpayer segment and forms part of the receiver’s clampdown on individuals hiding their riches. According to Sars, this unit will focus on the high net individuals and their wealth, often derived from multiple sources other than a salary and who employ complex, and often offshore, financial arrangements.
Sars commissioner Edward Kieswetter said they believed statements of assets and liabilities often say more about their financial affairs than statements of income.
He said they have been paying particular attention to taxpayers with undeclared offshore holdings to optimise compliance.
Kieswetter said they have at their disposal information relating to offshore account holdings of South African taxpayers, some of which seems not to have been declared.
“The information that has come into our possession shows possible noncompliance by some of these taxpayers,” he said.
On Wednesday, the Hawks in East London arrested Neliswa Tantsi, 49, who allegedly defrauded Sars .
Between 2014 and 2015, Tantsi allegedly failed to declare her trading earnings to Sars and is alleged to have made a misrepresentation and underdeclared her profits, but still claimed inflated value-added tax.
This resulted in the taxman losing just over R1.5 million.
Former Sars executive and author of Rogue (2016), Death and Taxes (2017) and Tobacco Wars (2019) Johann van Loggerenberg said he welcomed the “re-establishment” of this capacity, saying it demonstrated forward thinking.
“These are things that exist in revenue services the world over. These capabilities are necessary. History has shown us we need it,” he said.
“There is money in the tax base that is not coming in because the revenue service has lost that capability. Base erosion and profit shifting investigation and audits are complex. They take a long time and they are difficult to do.”
He said it also took time to build such capacity and it would take years before any results could be seen.
There is money in the tax base that is not coming in