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Clamping down on SA’s big tax dodgers

Thursday, 21 May 2015   (0 Comments)
Posted by: Author: Ingé Lamprecht
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Author: Ingé Lamprecht (The Citizen)

There is considerable scope to collect more revenue by addressing tax leakage due to transfer pricing.

Speaking at a forum event hosted by the Gordon Institute of Business Science (Gibs) recently, Judge Dennis Davis, chairperson of the Tax Committee tasked with a comprehensive review of South Africa’s tax system, said it was unclear exactly how much money the fiscus lost as a result of these practices, but it was a significant amount.

Rich pickings

During 2012 the South African Revenue Service (Sars) probed about 40 corporations on their transfer-pricing practices and collected more than R1 billion in additional tax revenue, he said. Transfer pricing is a common practice used by multi-subsidiary groups to minimise profits in high tax jurisdictions by selling goods or services within the group.

Davis said it was vital the issue be addressed, but it would require a proper transfer-pricing unit within Sars. His committee had recommended more staff should be assigned to the department and the matter should be dealt with properly.

The need to find additional tax revenue sources is under the spotlight as government tries to address its budget deficit amidst waning economic growth.

However, South Africa’s narrow tax base has left it with very little room to manoeuvre. In his February budget, Finance Minister Nhlanhla Nene raised personal income taxes by 1 percentage point for most categories of taxpayers and increased the fuel levy.

But as Eskom struggles to keep the lights on and economic growth falters, the issue of additional revenue sources could become even more pronounced in the coming months.

Commentators have flagged a potential increase in the VAT rate as a likely solution, but government might want to use VAT to fund the proposed National Health Insurance.

Davis said high-net-worth individuals could also be targeted.

Earlier this year, a whistleblower told the world HSBC bank in Switzerland had directed billions into locations where account holders would pay no tax, he said.

It turned out about R23 billion of these funds were connected to South Africa, Davis said.

While Sars had indicated it was investigating the issue, revenue departments from other jurisdictions were doing so much more aggressively.

The question he is curious about, however, is whether the government will take serious action about the vast sums of money outside the country which are not subject to an amnesty, he said.

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The US recently introduced the Foreign Account Tax Compliance Act, which requires South African financial institutions to report any account held by US citizens to American authorities.

"I’m interested in why we can’t have something similar,” Davis said.

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