The last few years have seen an increased compliance drive by the South African Revenue Service (Sars), fully backed by the Presidency and the National Prosecuting Authority, and more specifically, clamping down on higher net worth individuals worldwide.
What is interesting to see, however, is that this is being portrayed as a means of ‘positive reinforcement’ and accompanied by a ‘personal’ welcome note from Natasha Singh, Director of the-dedicated High Wealth Individual Unit (HWIU).
Just last week, what appears to be some of the first welcome notes were received by C-Suite executives, not only serving as an introduction to the HWIU, but also to assign dedicated service consultants, and a relationship manager.
The note specifically states that: “The focus of the HWI Unit is to build a partnership with high wealth individual taxpayers, based on mutual trust, transparency, service, and voluntary compliance.
“We want to make it easy for you to comply with your tax obligations, provide clarity and certainty regarding your tax affairs, and ensure that service queries are finalised timeously.”
While this focus is a commendable objective, what is written, and what has been seen, practically, may not necessarily be one and the same.
A means-ends analysis
As we have seen, and as confirmed in the 2022 African Wealth Report, there are a small number of South African taxpayers who hold a large portion of the country’s wealth. Although this proportionality was noted as the “widest wealth gap in the world”, discussions on implementing a ‘wealth tax’ may not be the most feasible option at this juncture.
What Sars has opted to do in the interim, however, is more stringently focus on the non-compliance of this small number of South African taxpayers, imposing heavier burdens of compliance in an attempt to fill the ever-present deficit to the fiscus.
The focus here lies on net assets and liabilities, and includes taxpayers who have left the country but continue to have South African interests – and who, for many years, believed certain aspects of their wealth were ‘tax-free’ so to speak, due to being located offshore.
This misconception is fast being remedied by the revenue authority, which, together with external jurisdictions that have an intersection of interests for specific taxpayers, may now perform a dual audit, or abide by the obligation imposed by the automatic exchange of information protocols.
While we do note that wealthy individuals generally do have more complex tax affairs, which in most cases does require the attention of a tax practitioner or specialist in the field, this is not always the case. However, on a critical analysis, an earlier ‘request for documents’ issued by the HWIU places a key focus on non-compliance, and the severity with which such will be treated.
In contrast to the recent welcome note, it appears Sars is yet to decide if they will be using the carrot, or the stick, with these very wealthy individuals.
While this may be considered quite standard by the revenue authority, taxpayers may feel some concern when receiving any correspondence from Sars.
Money talks, or does it?
Although it is admirable of the revenue authority to step up in this manner and take control of the situation by means of proactive rather than reactive measures, to the extent of even providing a direct contact number for the dedicated wealthy individual team, this can by no means be considered a reprieve for taxpayers.
When viewed in light of the current service delivery of the revenue collector, and the ongoing internal unrest and politics, an improvement in service delivery needs to be made; not just preferentially to the wealthy, but instead to all taxpayers.
The mandate for Sars is very clear: “Our mandate requires us to collect revenue.”
This increased focus on the wealthy is, quite simply, the next move in Sars’s revenue collection strategy, which they have, over the preceding years, implemented more forcibly than ever before.
Like all strategic movers, Sars has been biding their time, focusing on the most prevalent, and usually highest debts.
Sars has been consistently increasing the pressure of its collection measures, with final demands (the demand) being sent out like mass-mailers, and the follow-throughs on non-responsiveness becoming more drastic, by means of third-party appointments or Sheriff’s attachment in lieu of the outstanding amount.
With the above being borne in mind, now is not the time to flaunt wealth which has not been declared to the revenue authority, but rather, irrespective of how wealthy you may be, move proactively to a stronger position, arising from full disclosure and a clean compliance record.
First mover advantage
In order to protect yourself and your assets from Sars, it remains the best strategy that you always ensure proactive compliance.
Where you find yourself on the wrong side of Sars, there is a first mover advantage in seeking the appropriate tax advisory, ensuring you don’t get shot down for what could be the smallest of mistakes. However, where things do go wrong, Sars must be engaged legally.
As a rule of thumb, any and all correspondence received from Sars should be immediately addressed by a qualified tax specialist or tax attorney, which will not only serve to safeguard the taxpayer against Sars implementing collection measures, but also, being specialists in their own right, ensures that the taxpayer will be correctly advised on the most appropriate solution to ensure their tax compliance.
Baijoo is legal manager of Africa tax and compliance at Tax Consulting SA.