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ANALYSIS: SARS intensifies focus on the rich and ultra-rich with expanded team

05 December 2017   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser

The South African Revenue Service (SARS) now has a team of 30 people who focus exclusively on rich individuals and their tax affairs.

The total number of high net-worth individuals is just more than 37,200 with less than 1% of those individuals (234) being classified as ultra-rich, with net asset values of more than R75m.

The Davis Tax Committee says in its final tax administration report, published on November 13, that 0.1% of the South African population contributes about 30% of the country’s tax.

"The importance of this contribution to tax collection by a minority of taxpayers is recognised, particularly when considering that individuals contribute 38% of the total taxes collected compared to companies, which contribute 17%."

The committee recognises that "fiscal citizenship" is improved by building "trusting relationships" with high net-worth individuals to inspire confidence in the tax authority. It is also suggested that refunds be paid timeously, and that quality control over the actions of SARS officials be instituted to ensure all taxpayers are treated fairly.

The committee also recommends that taxpayer contraventions should be penalised "heavily" and prosecution must follow fraud without fear or favour. "No one should be outside the system," the report states.

SARS spokesperson Sandile Memela says the team was first formed in 2009 within the government’s Large Business Centre with 10 people who focused on 500 individuals. This year, an additional 20 people were appointed and their expertise includes risk profiling, auditing, consulting and account management.

The high-net definition has been expanded and now includes "lower affluent people" who earn more than R3m a year. They are generally salaried taxpayers and represent 54%, or 20,303 individuals, on the register for high net-worth individuals.

Affluent individuals earn between R5m and R7m, or have net assets worth more than R16m, and represent 27% of the taxpayers on the register.

High net-worth individuals earn income of more than R7m, or have net assets of more than R40m, and represent 18% of the register. Ultra-high net-worth individuals have net assets of more than R75m, and represent less than 1%, or 234, of the people on the register.

Elle-Sarah Rossato, vice-chairperson of the tax administration workgroup at the South African Institute of Tax Professionals (SAIT), says high net-worth individuals have developed into a "high-risk area", with offshore structures, and extensive siphoning off of money into international bank accounts, having become synonymous with them.

This was highlighted in the Luxembourg leaks in 2014, the HSBC leaks in 2015, the Panama Papers in 2016 and, more recently, the Paradise Papers. "The need for 30 people may be extravagant at first, but could also be based on best practice and cost-benefit in future … due to the complexity of the structures surrounding high net-worth individuals, together with the time and experience required from suitable and experienced tax officials," Rossato says.

Memela says compliance risk analysis is a dynamic process that is conducted within a set governance framework to ensure SARS is fair, objective and impartial towards taxpayers. "It informs the level of intervention that is required — verification [compliance] audit, investigative audit or criminal investigation — to ensure the efficient and effective use of resources."

Rossato says a dedicated unit with more experienced people could result in more accurate assessments as opposed to the "reduced quality" in assessments the industry is currently experiencing. "It could result in quicker turnaround times in resolving account queries or dealing with remission of interest and disputes (such as objections and appeals) and ultimately the swift release of refunds."

However, the Large Business Centre also started with a similar focus for large corporates, but has since evolved into a "less desirable unit".

Skills and knowledge have been depleted, turnaround times are slow and relationship managers are overloaded. "This results in frustration for some of the largest companies in SA, with potentially less tax being collected," Rossato notes.

Memela says SARS remains optimistic about the projected return on investment with the expansion of the unit dealing with the tax affairs of high net-worth individuals.

As part of its performance plan for 2017-18, SARS aims to conduct audits on 300 large companies, 130 high net-worth individuals, and 6,000 small- and medium-sized companies.

SARS disagrees with the perception that it focuses on legal taxpayers to get additional revenue, and that it does not focus on those who are not fully legal, Memela says.

Keith Engel, CEO of SAIT, says the issue, which has "scarcely been addressed" over the past 20 years, is a focus on high net-worth individuals who are simply not filing returns or paying any direct taxes at all, and that "this group requires a wholly different skill from revenue officials".

In this SARS is not alone, he says, as most revenue authorities around the world struggle with this informal yet wealthy group.

This article first appeared on: businesslive.co.za


 

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