In SARS’ Media Statement of 03 May 2023, the revenue authority provided an update on the implementation of the AIT process, clarifying that it is geared at the rationalisation and speeding up of the approval process.
SARS further highlighted that the new system specifically aligns with 2 of its strategic objectives, those being:
- Making compliance easy, and sometimes seamless for taxpayers wishing to comply; and
- Making non-compliance hard and costly for taxpayers who are unwilling to comply.
That being said, the jury is still out as to whether this is SARS simply aligning its systems with its proposed strategic intent, or if this is just SARS’ way to ensure they can follow the money by strengthening the tax treatment and verification process for unaccounted wealth.
From a perspective of SARS’ compliance trends, starting with their strategic objectives, and further enhanced by the promise of National Treasury to enforce compliance even with taxpayers’ foreign interest disclosures, this “upgrade” to its TCS process, especially in disclosing of foreign assets, was the only logical next step. The AIT application will be a requirement not only for taxpayers who are non-resident in South Africa, but also for residents wishing to approve fund movement outside of South Africa, in excess of R1 million.
Enhanced Compliance = Efficient Collections
Taking a page out of the Reserve Bank’s book, this new, robust declaration must include the source of funds to be transferred offshore, for any transfer in excess of R1 million per annum, for South African resident taxpayers.
Taking this one step further, in addition to the source of funds being evidenced, the below are some of the additional documentary requirements to be satisfied with SARS’ more stringent verification process:
- Declaration of any interests in a trust or company;
- Full disclosure of all local and foreign fixed properties, including the base cost value of assets, and the source of such valuation;
- Investments, crypto-assets, and cash in bank; and
- Descriptions of specific assets, where required.
This increased scrutiny on taxpayer compliance, aligns fully with SARS’ goal of “making non-compliance hard and costly”, affirming the revenue authority’s focus on taxpayer wealth, both remaining in South Africa, and that which is sought to be moved offshore by means of the cessation of tax residency.
This does however raise the question, of whether this is an attempted wealth retention, or if simply part of SARS’ due diligence prior to investigating further into the tax affairs and foreign interests, of certain taxpayers, deemed to be living beyond their means (on the face of it at least); at this stage, neither taxpayer nor practitioner knows for sure.
Due to this uncertainty in the market on the new AIT application, both from a procedural and evidentiary standpoint, industry-wide presentations are already underway, by leading tax experts. One such expert is Jerry Botha, Managing Partner at Tax Consulting South Africa, who has been approached by SARS registered RCBs, to host a number of webinars during May and June 2023, canvassing how to best navigate compliance, in line with the new enhanced process.
Beginning with the End in Mind
Beginning a compliance initiative with the end in mind, is something SARS is known for, which may very well be the case here; by ensuring there is full disclosure of all interests, both local and foreign, gauging if a taxpayer is living beyond their means, becomes that much less onerous on the revenue authority, and more a case of capitalising on data driven insights.
This aligns perfectly with a smarter, modernised SARS, with access to 3rd party data, has already proven effective in instances such as that of Airbnb Ireland last year – the introduction of the AIT process is not to be taken lightly as where taxpayers are not forthcoming, SARS most likely already knows what you think you’re hiding.
This ties in to prior initiatives implemented by the revenue collector, including the introduction of a High Wealth Individual Unit in October 2021, where unit director, Ms Natasha Singh, in an event held by the South African Institute of Taxation, in collaboration with Standard Bank and Tax Consulting SA stated that SARS knows “everything but what you had for breakfast”. This is relevant as it is most often taxpayers who would fall under this unit, who hold foreign interests, and have potentially not historically disclosed these to SARS.
Don’t Be Next on SARS’ Hit List
An exemplary case in point here, was Hamilton Ndlovu, an established Gauteng businessman, who discovered just how much SARS had increased their scrutiny on taxpayers living beyond their means, when SARS caught wind of his social media posting of luxury vehicles he had purchased, valued at approximately R11 million, cumulatively. The ensuing investigation performed by SARS, resulted in one of many successful asset seizure operations.
The most prudent approach to be taken, is to heed SARS’ warning that non-compliance will be both hard and costly for taxpayers. Where taxpayers find themselves in a potentially precarious position of now disclosing previously undeclared interests, or foreign income, the best practice is to seek the assistance of a tax professional, ensuring the best compliance strategy is followed.
However, in the event that a taxpayer has already undertaken the disclosure themselves, and a subsequent audit ensues, enlisting seasoned tax attorneys to help navigate the complex nuances of tax legislation will optimise a taxpayer’s compliance, reducing their liability, and thus preventing potential prosecution and the loss of “luxury” assets.