Sars amnesty for hidden assets a flop

© Leo Lintang 123rf.com

The South African Revenue Service (Sars) has so far handled 499 applications only under the special voluntary disclosure programme, which allows taxpayers with undeclared foreign assets to come forward before August 31 to regularise their tax affairs.

Although tax lawyers said there had been a last-minute flurry of interest in the past two weeks, sources said the programme had so far brought to light hardly more than a 10th of the nearly R40bn hoped for.

Tax experts blamed the low level of interest in the programme partly on the size of the levies applicants had to pay and the complexity and risk of the process. Taxpayers are required to provide a detailed explanation of how and when the money was sent offshore and who was involved.

"It is a little more expensive and a lot less user-friendly than people would have liked," says Norton Rose Fulbright tax director Andrew Wellsted.

Offshore bank accounts, offshore property and discretionary trusts have been the assets most commonly declared under the programme, which was announced in the February 2016/17 budget. It opened in October 2016, comes to a close at the end of August and provides tax and foreign exchange relief.

Judge Dennis Davis, who chairs the Davis tax committee, strongly urged the Treasury to introduce the amnesty.

There were hopes that the programme would generate large sums for the fiscus and plug the revenue shortfall. South African Institute of Tax Professionals CEO Keith Engel said the response had been muted because of the difficulties and complexities of the application process.

PwC tax leader in the Western Cape James Whitaker said that while the number of applications had been far lower than the 42,000 during the 2003 tax amnesty, the amounts involved were larger and typically involved bequeathed offshore discretionary trusts. He expects a rush of applications at the last minute.

"Sars expects the same in line with previous experience," spokesman Sandile Memela said. Engel expected the number of applications to rise to about 800-1,000.

The 2003 tax amnesty raised R2.9bn with R48bn of the R69bn that was declared having been held offshore illegally.

Once the current programme closes at the end of August, taxpayers with undisclosed offshore assets will be subjected to full taxation, full interest and no relief from either penalties or potential criminal prosecution.

Memela said that the 499 applications did not include taxpayers who had used the continuing voluntary disclosure programme to regularise their tax affairs.

This began in 2012 and by mid-March April 2016 R6.3bn had been collected from 8,401 taxpayers who voluntarily declared their undeclared assets in return for the waiver of penalties and criminal sanctions.

Memela said Sars would from September gain a better appreciation of the extent of offshore assets held when the automatic exchange of information between tax authorities started.

Engel said there were three impediments to the current programme. First, 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.

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. Finally, the fee for coming clean was too high to act as an incentive for taxpayers to come forward. South African Institute of Chartered Accountants senior executive for tax Pieter Faber also highlighted the problems experienced in collating all the required documentation and getting assets valued.

The complexity of the information required by the revnue service was the main reason why some tax practitioners had pleaded for the programme to last much longer.

The programme had also got off to a slow start, Faber said, because the legislation for it was only promulgated long after the opening date.