Fewer dens for tax dodgers

The world is a small, interconnected place becoming increasingly more so with the advancements of the internet and, more recently, with the surge in videoconferencing during the Covid-19 pandemic.

This adage applies equally to the tax authorities as they build a global network of information sharing that is closing the net ever tighter around tax evaders. The days when wealth could be accumulated abroad, out of sight of the authorities, are fast disappearing. Tax authorities have a common interest in sharing this information to ensure all citizens pay the right amount everywhere.

This network is built on the automatic exchange of information protocol introduced by the Organisation for Economic Development and Co-operation (OECD) in 2014 that now has about 160 countries signed up.

In 2019/2020, SA received 1.38-million reportable records from 87 of these countries that have implemented the protocol. It was on this basis that the SA Revenue Service (Sars) estimated there are well more than R400bn of assets held by SA taxpayers abroad, not all of it declared.

Tax evaders fearing detection might draw some comfort were this the only information available to Sars, as it is probable that a large amount of the information it receives relates to individuals who are tax compliant. More worrying for them would be that while the net is closing, its reach is also expanding.

Sars commissioner Edward Kieswetter says Sars also has arrangements with offshore banks and other financial institutions to automatically submit information about South Africans with bank accounts in their jurisdictions. It is not even necessary for Sars to ask for this information. He says Sars is aware of increasing numbers of South Africans who have financial assets offshore in banks and financial institutions.

Furthermore, Sars has relationships in the OECD with the foreign counterparts of its Financial Intelligence Centre, which monitors suspicious transactions in order to combat money laundering and the financing of terrorism. Another sign of the wealth held offshore by South Africans came via the special voluntary disclosure programme for taxpayers who had not disclosed their offshore assets and income and which ran from October 2016 to August 2017. Sars was able to collect R4.4bn from more than 3,000 taxpayers who had undeclared assets of R28bn. This is likely to be just the tip of the iceberg.

At the same time that this network is deepening and expanding, Sars — decimated in the years under former commissioner Tom Moyane — is building up its internal capacity to intelligently use the mass of data it receives through this network. Its ability to do so was boosted by its R3bn allocation over the next three years in finance minister Tito Mboweni’s February budget. Kieswetter said this money will be used to build up Sars’s technological and human capabilities as well as to invest in artificial intelligence.

Retired judge Dennis Davis has been recruited to assist Sars in implementing the recommendations of the Davis tax committee, which was asked to make an assessment of the tax gap — estimated at more than R100bn a year — and how to reduce it. The focus will probably be not only on wealthy individuals and corporates locally but those abroad as well.

Admittedly, tax evaders often use complex structures and trusts to hide their wealth. Kieswetter concedes that unearthing them will not be easy, though he insists it is not impossible.

Neither will it be easy for tax evaders who have long been under the radar to come forward and disclose their financial affairs, as Kieswetter is encouraging them to do. But given the trend in data collection, the strengthening of Sars’s capabilities and the commissioner’s warnings that those who don’t come forward and are found out will be hit hard, it might be time for them to carefully consider their options.

ANOTHER SIGN OF THE WEALTH HELD OFFSHORE CAME VIA THE DISCLOSURE PROGRAMME