How SARS is going to rich taxpayers in South Africa

The South African Revenue Service (SARS) set up a High Wealth Individuals Unit in 2021 to improve the compliance of individuals with wealth and complex financial arrangements, says Louis Botha, senior associate at law firm Cliffe Dekker Hofmeyr.

SARS then appointed Natasha Singh as its director in October 2021, indicating that the unit has selected about 1,500 wealthy individuals and its related entities to investigate for compliance, but that it would expand its reach to include more individuals and families.

“In the 2022 budget speech, it was announced that the HWI unit would take shape, as part of the reconstruction of SARS,” Botha said. “In addition, further proposals have been made that appear to be aimed at ensuring compliance by HNWIs.”

Currently, provisional taxpayers with business interests are required to declare their assets (based on their costs) and obligations in their tax return each year.

It is proposed that in order to assist in detecting non-compliance or fraud by the existence of unexplained wealth, all provisional taxpayers with assets above R50 million will be required to declare specified assets and liabilities against market values ​​in their 2023 tax return.

“The 2022 budget speech notes that this additional information will also help determine the levels of wealth and structures as recommended by the Davis Tax Committee,” Botha said.

Correct disclosure of asset values

It seems that this proposal will have an effect on the announcement by SARS in October 2021 about extending the scope of the HWI unit, Botha said.

“It is likely that all individual provisional taxpayers who will eventually have to declare their assets under this proposal may also be investigated by the HWI unit.

“From a practical perspective, this proposal will place a greater burden on taxpayers to properly explain the market values ​​of their assets.”

Taxpayers should also keep in mind that under the Tax Administration Act 28 of 2011, it is a crime to declare false information in a statement, he said.

“In other words, taxpayers may be at risk of prosecution if they do not declare the fair value of their assets in an attempt to fall below the R50 million threshold and prevent detection by SARS. ”

It is important that taxpayers who are required to declare certain assets at market value do not necessarily pay more tax, because a mere increase in wealth does not necessarily mean that more tax will be paid, Botha said.

“An increase in the value of an asset will only result in additional tax being paid if that asset is offset and capital gains tax is paid.

“Practically speaking, the implementation of the SARS proposal can also allow to assess whether an individual has correctly declared their income in a particular year and whether their liability for income tax seems correct, given the level of wealth of the taxpayer.”

Another interesting announcement in the 2022 budget speech is the proposal to assess the provisional tax system given changing circumstances and international developments and the intention to publish a discussion paper on it, Botha said.

“Given the proposal for provisional taxpayers who have assets of more than R50 million to declare specified assets and liabilities in their 2023 tax return, it will be interesting to see whether the assessment of the provisional tax system affects or reaches it. proposal will affect. “

To read: Government knows rich taxpayers are leaving South Africa: analyst

How SARS is going to rich taxpayers in South Africa

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