With South Africa’s tax amnesty’s deadline fast approaching, it seems like the South African Revenue Service’s (SARS) efforts at boosting the country’s coffers have resulted in failure.
As of earlier this week, SARS had only processed 499 applications to bring back undeclared foreign assets as part of its special voluntary disclosure program (SVDP), and the funds thought to have made it onshore amount to only about a tenth of what was originally expected.
Moneyweb’s Ingé Lamprecht reports that, as of February, the South African tax authorities “had received disclosures of R3.8 billion in foreign assets under the SVDP,” a far cry from the estimated total amount expected at R600 million.
So far, most of the declarations have involved offshore banks accounts and property held abroad.
As explained by International Adviser, the tax amnesty plan does not apply to trusts, but “settlors, donors, deceased estates and beneficiaries of foreign discretionary trusts may participate in the SVDP, provided they elect to have the trust’s offshore assets and income deemed to be held by them personally for tax purposes.”
South Africa’s Tax Authorities Expect Final Boost for Tax Amnesty Program
Government officials, however, expect the amount of foreign assets declared will ramp up as the tax amnesty’s deadline of Thursday, August 31st approaches.
SARS spokesperson Sandile Memela said, “In line with Sars’s experience with previous deadlines, it is anticipated that the number of applications will increase significantly in the closing weeks of the SVDP window.”
“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 (CRS) for early adopters [comes in] and in 2018 when automatic exchange of information commences for additional jurisdictions,” Memela added.
Norton Rose Fulbright’s head of tax Andrew Wellsted agrees with Memela, saying, “I think that people’s acceptance of the programme has increased over time.”
As reported by Moneyweb, Wellsted says that, “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.”
South Africa will start receiving financial information as part of the OECD’s program in September, and the government wanted to give its citizens a chance to bring their funds onshore prior to this deadline.
As reported by International Adviser, Memela said that, once CRS kicks in, “taxpayers with undisclosed offshore assets will be subjected to full taxation, full interest, no relief from penalties and no relief from potential criminal prosecution.”
Advantages & Disadvantages to South Africa’s Tax Amnesty Plan
KPMG explains that South Africans opting to participate in the SVDP would benefit from the following:
- Exemptions for “the undeclared off-shore income…from income tax, donations tax and estate duty that would have applied had such income been properly declared in the past year of assessment;”
- “40 percent of the highest value of the aggregate of all assets situated outside South Africa between 1 March 2010 and 28 February 2015 derived from undeclared income is included, however, in taxable income and subjected to tax in South Africa. (The 'highest value' is the market value determined in the relevant foreign currency and translated to the South African Rand at the spot rate at the end of each year of assessment),” and;
- “No understatement penalties” and no “criminal prosecution.”
However, as pointed out by South African Institute of Tax Professionals CEO Keith Engel, the tax amnesty program has also made it difficult for individuals and companies to come forward with their undeclared assets.
Engel explains in a Bizcommunity article that there are three major issues with the SVDP.
First, he says, “under exchange control and Independent Regulatory Board for Auditors regulations, tax advisers were required to report any declaration of illegally held assets made by a client who decided not to apply for amnesty. This had discouraged many of the banks and accounting firms from actively promoting the special dispensation.”
Furthermore, Engel adds, “another problem was the complexity of the documentation required. For example, proof of the value of the undeclared assets over a number of years was required.”
Third, “the fee for coming clean was too high to act as an incentive for taxpayers to come forward,” he concludes.
Will South Africa’s tax amnesty end up being a failure? Let us know your thoughts below!