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Experts call for easier plan to tax hidden cash

Wednesday, 31 August 2016   (0 Comments)
Posted by: Author: Linda Ensor
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Author: Linda Ensor (BDlive)

Tax experts have unanimously called for the Treasury’s special voluntary disclosure programme to be made simplified and for the application period to be extended to ensure that more people come forward to declare their illegally hoarded offshore assets.

They are also unanimous that significant sums held abroad were left untouched by the two previous tax amnesties held in 2003 and 2010. The amnesty announced by Finance Minister Pravin Gordhan in his 2016-17 budget provides tax and foreign exchange control relief for undeclared assets held abroad.

One of the main complaints about the programme scheduled to start in October is that the six-month period allowed for applications is too short given the complexity of the supporting documentation required. This would discourage people from even attempting to apply, the tax experts told Parliament’s standing committee on finance, which held public hearings on Tuesday on the special voluntary disclosure programme and other aspects of proposed tax laws.

They recommended that the application period last for a year to allow people to gather the necessary information.

Another shortcoming of the proposals was the complexity of the documentation required. This should be simplified especially as much of the offshore money was taken abroad a long time ago and the paper trails were no longer available.

However, Treasury chief director of legal tax design Yanga Mputa stressed that the Treasury had to strike a balance in its treatment of non-compliant and compliant taxpayers. She noted that the Treasury had drafted three versions of the programme, taking into account the appeals of taxpayers that it be simplified.

South African Revenue Service group executive for legislation and policy research Franz Tomasek added that while simplicity was important, the design of the disclosure programme also had to be "fit for purpose".

In terms of the proposals, 50% of the value of the capital that an applicant for amnesty built up abroad and failed to disclose to the authorities will be taxed. The assets will have to be valued at the peak market value, translated into rand, over the five-year period from March 1 2010 to February 28 2015.

South African Institute of Tax Professionals representative Erika de Villiers argued that the inclusion rate of 50% of the peak market value of the offshore assets might be too high. "A total cost (including exchange control and tax) of 20%-25% would be more palatable, resulting in a better uptake," she said. This could be achieved by reducing the inclusion rate to 40%.

She also believed too much tracing of historic records of the assets was required and could be very difficult, especially as legal and illegal amounts often became mixed up. The requirement for a five-year valuation of the assets was "excessive and cumbersome", she said.

Furthermore, she added, financial institutions took time and charged substantial amounts to provide this information, adding to the cost. It would be much simpler, De Villiers said, to use the market value of assets held on February 29, bringing the tax amnesty into line with the foreign exchange control programme.

Both the South African Institute of Tax Professionals and the South African Institute of Chartered Accountants have also argued for a "safe harbour" for professional advisers such as lawyers, auditors and bankers who advise clients with illegal stashes abroad. Laws such as the Financial Intelligence Centre Act and the Audit Professions Act require them to report any irregularities and if they were not exempt from this requirement, both the advisers and the offending taxpayers would be reluctant to enter into discussions, the institutes said.

A significant area of concern was in the treatment of trusts.

Paul Gering, the director of tax at accounting firm PKF, also believed the amnesty would not encourage people to come forward. The net should be broadened by fully including trusts and value-added tax and the cost of disclosure should be reduced. "SA needs funds now for development. If we don’t use this opportunity, the funds will go down deeper and deeper," he told MPs.

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