In his budget speech last week, minister of finance Pravin Gordhan gave details of the new Special Voluntary Disclosure Programme, inviting non-compliant taxpayers to voluntarily disclose any offshore assets and income.
He said: “Time is now running out for taxpayers who still have undisclosed assets abroad. With next year’s deadline in mind, additional relief will be offered for a period of six months, from October this year, to allow non-compliant taxpayers to regularise their affairs.”
Global standard coming
With the South African Revenue Service (SARS) now subscribing to new global standards for information exchange between tax authorities from 2017, any taxpayers with assets held overseas will be able to apply for tax relief during a six-month window from 1 October 2016 to 31 March 2017.
Initially the applications may be made unnamed via tax affairs representative, and trusts will not qualify, unless their terms stipulate any offshore assets and income are to be held within them.
Under the new regime, any seed capital used to purchase offshore assets before 1 March 2015 will only be taxed on half the amount if the applicant failed to comply with the SARS tax rules.
Investment returns included
Any investment returns of offshore assets received or accrued from 1 March 2010 onwards will be included in taxable income and subject to normal tax charges. Investment returns gained prior to 1 March 2010 will be exempt from tax.
As with the current voluntary disclosure programme, SARS will not pursue criminal prosecution for any tax offences where applications under the programme are successful.
EY Africa international tax director Charles Makola said amnesties of this nature were a good way to encourage compliance without stretching SARS resources with enforcement – the carrot rather than the stick approach.
Makola said it was difficult to gauge the levels of overseas assets held by South African residents and goodwill was at play, with previous voluntary disclosure regimes not necessarily an indicator of current levels.
“There is an argument that the law of diminishing returns may come to play and that past aggressive enforcements may have exhausted that revenue base,” he said.
‘There might however still be other taxpayers that could not take advantage of the programme previously that might want to reconsider. Given the complexity of the rules, others might well not have known about their non-compliance status. The forgiveness of a portion of interest is a welcome incentive; as this may be punitive for prolonged non-compliances.”
Individuals and companies can apply for the tax relief, with pertinent examples being funds exported that breach exchange control limitations, immigrants who fail to declare foreign-based assets, or people failing to declare interest in offshore vehicles housing their assets, for example.
Makola said: “The assets may have been acquired in any manner. The South African Revenue Service has previously acknowledged that there is a higher risk of non-compliance in that mid-market.”
