wealth tax

Sars’s call to action

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The old proverb still rings true – you can lead a horse to water, but you cannot make it drink.

In this case, despite the South African Revenue Service (Sars) referral of criminal taxpayers to the National Prosecution Authority (NPA) as well as the Zondo Commission’s damning findings levied against various high-profile persons, it appears that the NPA is reluctant to pull the trigger and initiate prosecution proceedings against these individuals.

Read:
The Zondo Report on SAA, SAAT and SA Express
State capture: how the rot set in and how the project was rumbled

In more recent years, Sars has clinically put measures in place to improve the efficiency by which taxpayers are investigated for criminal tax offences and referred to the NPA for prosecution.

The two major developments in this direction were Sars updating its Memorandum of Understanding with the NPA in 2019, rejuvenating the collaboration between the two institutions, and National Treasury’s amendment to tax legislation dealing with criminal tax offences, the change being that taxpayers may be found guilty of certain offences on the basis of negligence, therein removing the obligation on the NPA to prove criminal intent.

The question at the moment: where is the stream of public prosecutions of high-profile, wealthy tax offenders the public so desperately wants to see?

In May 2021, Sars and the NPA issued a joint media statement, whereby the enhanced collaboration was stated to specifically target key challenges of tax-related criminal activity and non-compliance, affirming that even though the authorities have different mandates, they shared a common goal – the eradication of fraudulent activity.

Kieswetter frustrated

This effectiveness of the NPA has, however, been called into question with Sars Commissioner Edward Kieswetter quoted in the media as stating that he has hope that the NPA “gets [its] act together so that we can see more [criminal and non-compliant] taxpayers in orange overalls, behind bars”.

Kieswetter is clear in his narrative that Sars cannot be blamed for the failures of the NPA and has repeatedly stated that Sars’s achievements under his tenure have not been sufficiently recognised, in particular with regard to the increase in revenue collection which greatly exceeded projections for the most recent fiscal year.

High-net-worth sniping

The NPA’s lacklustre efforts have not left Kieswetter deterred, and the next phase of his revenue collection strategy is starting to be realised.

While South Africa has not yet seen the introduction of a new ‘wealth tax’, the Kieswetter is determined to see through initiatives to significantly increase revenue collection from so called high-net-worth individuals (HNWIs).

Read: Sars hones its relationship with the rich and the super-rich

It is no coincidence that April 2021 saw Kieswetter announce the creation of an HNWI Unit, dedicated to the tax compliance of these individuals, as well as his intention to engage the services of renowned tax expert Judge Dennis Davis. In tax circles, Judge Davis is well-known for his role in the Davis Tax Committee and the publishing of the second and final Report on Estate Duty prepared for the then minister of finance in April 2016.

The report intricately details the use of foreign trusts and other structures that HNWIs have used for generations to protect their wealth from South African income tax.

This information has always been available to Sars – it merely needed the right team and the right leader to take the required action here.

Any tax evasion found in these structures will naturally be ripe for referral to the NPA.

If these steps were not enough, the commissioner’s latest idea in targeting HNWIs was announced by Minister of Finance Enoch Godongwana in his February 2022 Budget Review, wherein it was proposed that all provisional taxpayers with assets exceeding R50 million in value be required to declare both assets and liabilities to Sars.

This mechanism must still be unpacked, but it suspected that Sars might include a taxpayer’s ‘contingent rights’ to assets, which would compel HNWIs to disclose their interest in foreign trust structures as well.

All eyes on the NPA

As Sars continues to concentrate its efforts on revitalising the institution to its pre-Tom Moyane era glory, the South African public’s focus remains on the NPA, waiting for the higher-ups to deliver on outstanding promises to put tax evaders behind bars.

By all accounts, Kieswetter will have his list of alleged criminally non-compliant taxpayers ready soon, hopefully together with the supporting evidence, and which then leaves the baton with the NPA to deliver the much-needed result.

Darren Britz is head of tax legal and Jashwin Baijoo is legal manager, africa tax and compliance, at Tax Consulting SA.

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