Minister narrows in on wealthy tax dodgers

2012-04-16 14:57

Rich people not complying with tax laws will face the music, Finance Minister Pravin Gordhan has warned.

In a written reply to a parliamentary question, the minister said the amount of R50 billion reported in the media as being owed by high-net-worth-individuals (HNWI) was an estimate of gross income rather than tax, and was based on statistical extrapolation of third-party data.

“An accurate estimate of the potential tax liability of this group is not possible as each case is unique,” he said.

For example, in some instances income might be held in trusts, companies or other structures, while in other cases the income might have been derived from dividends or capital growth rather than remuneration, and therefore qualified for a lower rate of taxation.

That being said, the South African Revenue Service (SARS) was taking steps to improve compliance among HNWI.

 These included establishing a dedicated unit to handle the tax affairs of this segment.

Improvements in compliance with the tax laws would be a focus area for SARS this year.

The receiver of revenue was using its own data and data from third parties to identify failure to register as a taxpayer, undeclared income and a variety of other forms of non-compliance.

Gordhan said the receiver had also commenced audits and investigations on a number of wealthy individuals and their associated entities, such as trusts and companies.

Given the complexity of tax affairs of many HNWIs, audits and investigations in this segment usually required a substantial and extended commitment of resources.

One such case involving more than R200 million in tax and more than R400 million in additional tax had involved litigation in multiple jurisdictions and had stretched for more than a decade.

HNWIs were often internationally mobile, with assets and activities in other jurisdictions, which demanded a greater level of international cooperation.

South Africa currently had 70 double taxation agreements and five tax information exchange agreements in force that provided for the exchange of information with other jurisdictions, he said.

SARS had also commenced joint audits with jurisdictions like Botswana, the UK and the US with respect to HNWIs.

“The legislative framework has been modified to limit arbitrage opportunities and close loopholes. As examples, the higher CGT (capital gains tax) and dividend tax rates have helped narrow the arbitrage gaps between normal income and capital gains and between the income derived in an individual’s hands and through a corporate entity,” Gordhan said.

“As noted earlier, the information reported on by the media was based on a statistical extrapolation which indicated that there could be up to 9 300 individuals in South Africa who meet the SARS criteria for registration as a HNWI.”

He added: “This appears at odds with SARS’s current registration of 2 300 HNWI.”

The receiver was conducting follow-up research and risk assessment to identify actual cases of non-compliance, including failure to register as a taxpayer.

Where non-compliance was established, action was taken, including registration of the individual, imposing any tax outstanding, additional tax (understatement penalties) of up to 200%, and interest on outstanding amounts.

Administrative penalties for failing to submit income tax returns could also be imposed.

“Collection efforts to recover the taxes payable, within the timeframes set by law, have begun on cases that have been finalised. Where appropriate, individuals could also face criminal charges,” Gordhan said.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.