High-net-worth individuals (HNWIs) will find themselves under greater scrutiny from SARS in the immediate future.
This is according to Jerry Botha, managing partner at Tax Consulting South Africa, who says: “In reviewing the SARS Annual Performance Plan for 2017 to 2018 one will notice that they have highlighted low compliance of HNWIs as a strategic risk.”
Botha points out that this is in addition to the 12% of taxpayers on the register which SARS will audit for the next year.
The South Africa 2017 Wealth Report, published by Research and Markets, indicates that the country is home to some 40 400 HNWIs with a combined wealth of $171-billion. If many of these individuals are not meeting their tax obligations, as SARS believes, a substantial amount of revenue is being lost per annum.
SARS’ response to this perceived threat to revenue collection will be to “develop and acquire capability to effectively tackle HNWIs and their related trusts, and redefine taxpayers in this segment”. The document also states that one approach the tax authority will take to enforce compliance is “increased and targeted audits”. The text goes on to say that 130 HNWIs can expect to be audited in the 2017/2018 tax year.
SARS has also committed itself to complete its implementation of the Organisation for Economic Cooperation and Development’s (OECD) Common Reporting Standard (CRS) by end of December 2017. This means that there can effectively no longer be offshore hidden money, as the world has followed the US’s lead in forcing disclosure by financial institutions of any account owned or otherwise connect to South African residents or citizens.
Apart from SARS’ activities, new legislation is being developed to close loopholes that are often exploited to reduce tax obligations. A recent example is the Taxation Laws Amendment Act 15 of 2016 that redefines the forgone interest on low-interest or interest-free loans to a trust as a donation, thereby making the lender liable for donations tax.
“My advice to every high-net-worth individual is to realise that their options for avoiding taxation, legal or otherwise, are shrinking,” says Botha. “It’s important that they get their financial affairs in order and, if necessary, make use of the leniency SARS is offering in terms of voluntary disclosure.
“The most effective measure is that high-net-worth individuals should self-audit their structures and ask themselves the tough questions. Once SARS asks these questions and people are found wanting, the penalty regime means penalties alone will mostly be more than the actual taxes.”
As far as self-disclosure is concerned, Botha is referring to SARS’ Special Voluntary Disclosure Programme by which taxpayers can reveal undeclared income at reduced penalties and without fear of prosecution. However, he warns that the final date for this allowance is 31 August 2017, so those wishing to take advantage of it should act promptly.