Business

Inge Lamprecht
3 minute read
21 Aug 2017
7:46 am

Tax amnesty: The net is closing in

Inge Lamprecht

There's more interest in the Special Voluntary Disclosure Programme as deadline looms next week.

Dubai, UAE-June 5,2015: Burj Khalifa, the tallest building in the world, situated near Dubai mall, Souk Al Bahar, hotels and high-rise residential building.

Despite indications that it is relatively unfriendly and expensive, there has been growing interest in government’s special tax amnesty programme in recent weeks.

The deadline for the Special Voluntary Disclosure Programme (SVDP), which allows taxpayers with undisclosed or unauthorised foreign assets and associated income to regularise their affairs, is August 31.

The programme was launched in anticipation of the automatic exchange of information between international tax authorities. The SA Revenue Service (Sars) will start receiving offshore third-party financial data from other tax authorities on a regular basis from September. This will make it much more difficult for taxpayers to conceal offshore assets.

According to Sars spokesperson Sandile Memela, 499 SVDP applications have been received to date. The number does not include taxpayers who chose the ongoing VDP process to regularise their tax affairs.

Offshore bank accounts and property were the most commonly declared assets.

“In line with Sars’ experience with previous deadlines, it is anticipated that the number of applications will increase significantly in the closing weeks of the SVDP window,” he says.

Andrew Wellsted, head of tax at Norton Rose Fulbright, says there has definitely been a progression in taxpayers’ attitude towards the programme.

“I think that people’s acceptance of the programme has increased over time.”

Although the programme is arguably fairly expensive and unfriendly, which will likely discourage optimal uptake, the message that the Common Reporting Standards (CRS) will make it increasingly difficult for people to hide assets offshore is hitting home, Wellsted says.

The CRS is a set of global standards that govern how tax authorities in participating countries share information about the financial assets of their taxpayers. The number of inter-country agreements signed has increased substantially over the past few months.

Foreign institutions have also become reluctant to hold money on behalf of clients where account holders can’t prove that the money is legitimate. They fear being fined and suffering reputational damage.

“I personally believe that those who don’t disclose are going to find they actually can’t use the money,” Wellsted says.

Natalie Napier, partner at Hogan Lovells, says they have also seen an increase in interest in the programme over the last few weeks. Affected taxpayers have realised that time is running out.

The value of declared assets was somewhat of a mixture – some amounts have been significant, while others have not been meaningful, she adds.

Although the programme will generate some tax revenue, it is unlikely to be a significant money-spinner for government. A similar 2003 amnesty raised between R3 billion and R7 billion for state coffers. Assets in excess of R68 billion were identified and brought into the South African tax net at the time.

“It is difficult to anticipate the final numbers or anticipate the number of declarations that the SVDP will yield,” Memela says.

“Sars will gain a better appreciation of the extent of offshore assets held from September 2017 onwards when the automatic exchange of information under the Common Reporting Standard commences for early adopters and in 2018 when automatic exchange of information commences for additional jurisdictions.”

By February 2017, Sars had received disclosures of R3.8 billion in foreign assets under the SVDP. The Budget estimate was that this would yield around R600 million in tax revenue.

Memela says after the SVDP window closes, taxpayers with undisclosed offshore assets will be subjected to full taxation, full interest, no relief from penalties and no relief from potential criminal prosecution.

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