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Will relaxed tax rules on hoarded assets have the desired effect?

Monday, 12 September 2016   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (BDlive)

Provisions for the current special voluntary disclosure program (SVDP) for South African taxpayers with unauthorised assets abroad might not be enough to persuade them to come clean.

If the SVDP is implemented successfully, it will alleviate the need for government to raise taxes in the next financial year.

Judge Dennis Davis, head of the Davis Tax Commission, said the SVDP has the potential to bring in additional revenue of between R10bn and R15bn.

In other countries around the world similar programmes have brought in undeclared revenue of €55bn.

This is seen as the last opportunity for South Africans with unauthorised assets abroad to regularise their affairs. The global exchange of information between financial institutions and tax authorities kicks off next year.

This means moneys unbeknown to SARS at the moment, will not be unbeknown for long. Those who do not come clean before then get no sympathy from the tax — or from prosecuting authorities.

The SVDP has been introduced during this year’s budget to offer South Africans another opportunity to get their tax affairs in order.

Tax consultants at the annual Tax Indaba in Midrand warned that the lack of simplicity and no safe harbour for consultants who assists their clients, coupled with the cost of coming clean, might hamper the success of the programme.

In the draft response document, discussed in Parliament on Wednesday, concessions have been made to alleviate some of the concerns.

The window period for applications has been extended to nine months from the previous six, and notably, the rate at which the value of the unauthorised assets will be taxed has been lowered.

The proposed programme provided for a rate of 50% on the highest value of the combined assets that were outside the country between March 2010 and February last year. This has now been lowered to 40%.

Vlok Symington, group executive of product oversight at the South African Revenue Service (SARS), says with currency exchange fluctuations, the effective cost to regularise tax and control exchange transgressions would be approximately 20%.

He said since the February announcement, several adjustments to the programme had been made to simplify it and to ensure it is affordable.

The provisions around trusts remain problematic, as well as the ability of advisers to assist their clients without having to report them.

Georgia Fotiou, tax partner at KPMG in Switzerland, says banks in Switzerland will become part of the exchange of information network from next year. They want to clear their portfolios.

If South Africans are not compliant by the time they have to report their accounts will be closed, she warns.

Fotiou says the success of any special voluntary programme depends on the time frame, the level of the levy to be paid, and the assurance of confidentiality.

KPMG’s experience in Switzerland showed that successful programmes were the ones where the effective cost was between 15% and 25%.

In instances where the repatriation of assets was mandatory, no clients came forward. This had been the case with the programme in Chile.

In countries where there are high levels of corruption, individuals are also apprehensive of declaring their worth, fearing kidnappings and blackmail.

Johan van der Walt, committee member of the South African Institute of Tax Professionals (SAIT), also raised the industry’s concern that applications must include the names of the facilitators who assisted South Africans to take their money out.

Symington gave the assurance that it is not a witch hunt, but rather a way to understand how transactions are structured to get the money out.

The window for the proposed SVDP is supposed to open on October 1 and apply until June 30 next year. This is a month after banks and financial institutions will be required to provide SARS with information for the automatic exchange of information with other tax authorities.

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