Net closing in on tax and forex dodgers

STEVEN GRUZD

With countries soon to automatically share tax and bank account information with one another, the clock is ticking for those with investments outside South Africa to “regularise” their tax and exchange control affairs.

Many in the local Jewish community have surreptitiously squirrelled away money overseas for years (as, of course, have many other South Africans). But will this new measure boost the coffers of the beleaguered South African Revenue Service (SARS), or erode the very tax base it is trying to bolster?

After 9/11, authorities stepped up efforts to track illicit financial flows, in particular those funding terrorists. Cross-border collaboration was ramped up to follow the money. As a result, from September 1, this year, when the international Common Reporting Standards kick in, people will find it much harder to hide foreign bank accounts from their national revenue services, as information will be automatically reported to them by their global counterparts.

In his February 2016 Budget Speech, Finance Minister Pravin Gordhan said: “Our international collaboration is an essential part of efforts to ensure that the tax system remains robust… Time is now running out for taxpayers who still have undisclosed assets abroad.”

Gordhan announced that a Special Voluntary Disclosure Programme (SVDP) would soon be instituted. The legislation was finalised in January.

So, will taxpayers now come clean?

According to Chait, about 45 000 mainly private individuals received amnesty in a disclosure programme begun in 2003, paying a 10 per cent penalty.

Chait noted that when exchange controls were much more restrictive, many South Africans travelling abroad, acted as “currency mules”, transporting forex for wealthy individuals by using their full currency allowance for the price of an air ticket. Others deposited their leftover travellers’ cheques in foreign banks that didn’t ask too many questions. “This was highly illegal, of course,” he said.

In his 2017 budget, Gordhan said: “South Africa intends to sign a multilateral instrument this year which… will reduce the scope for aggressive tax avoidance activities.”

He said the SVDP – run jointly by SARS and the South African Reserve Bank (SARB) through the eFiling online platform – had already received disclosures of R3,8 billion in foreign assets, said to yield about R600 million in additional revenue.

Chait notes that those who use the SVDP “could pay 26 per cent of the value of the capital to SARS and SARB for the sake of regularising. Some feel this is too expensive and may seek alternatives.” He says that the scheme could backfire, as wealthy employers, entrepreneurs and taxpayers might emigrate to avoid these high costs, including making aliyah.

But what is the cost of non-compliance? Chait says: “You may have to answer some very uncomfortable questions from SARS” and could face heavy under-disclosure penalties. This is despite recent comments by Justice Dennis Davis recently that SARS was on the brink of imploding, due to senior staff departures, reduced collections and political infighting.

The risk is real. Israeli banks, for instance, have been under huge pressure from the US to “know their customers”, demanding disclosure, or otherwise threatening to freeze accounts.

However, for Professor Barry Spitz, who was formerly a consultant to SARS, the IRS and the IBFD in Amsterdam, international solutions begin at the starting point of picking up the original error that led to one misidentifying the real issue in the first place. From then on, the problems solve themselves.

Despite South Africans being notorious for complying with rules at the last minute, Chait says: “People seem to just want to get shot of this.”

The deadline for the SVDP expires on August 31, this year.