The South African Revenue Service (Sars) is establishing a separate unit – the High Wealth Individual Taxpayer Segment (HWI) – to focus on individual taxpayers with wealth and complex financial arrangements.
The unit will initially be co-located with the Large Business and International Taxpayer Segment, and is designed to help Sars develop and administer a tax and customs system based on voluntary compliance.
Through the new unit, Sars seeks to offer a “differentiated service”, as the organisation does with other tax types, to the individuals with significant wealth, often derived from multiple sources other than a salary and who employ complex, and often offshore, financial arrangements.
“We believe that statements of assets and liabilities often say more about their financial affairs than statements of income,” Sars states.
In identifying the need for the unit, Sars says it believes most taxpayers want to fulfil their legal obligations voluntarily, and as such wants to “make it easy and seamless” to transact with the organisation, with the new unit also having the indirect intention to “make it hard and costly” for those taxpayers who do not comply.
On its “journey to foster a culture of voluntary compliance”, Sars points out that it has been paying particular attention to taxpayers with undeclared offshore holdings to enhance compliance.
As an early adopter of the international standard for the automatic exchange of financial account information, Sars says it has, at its disposal, information relating to offshore account holdings of South African taxpayers. Some of this information, the organisations says, seems not to have been declared.
“The information that has come into our possession shows possible noncompliance by a number of these taxpayers.”
In this regard, Sars points out that taxpayers were given the opportunity to regularise their tax affairs to account for their offshore holdings through the special voluntary disclosure programme in 2016/17.
Taxpayers also had the opportunity to do so through the ongoing voluntary disclosure programme (VDP) under the Tax Administration Act.
Sars says that although some taxpayers took advantage of this, others chose not to do so.
The information that Sars has received comes from 87 jurisdictions across the world, detailing the offshore financial holdings of South African taxpayers. “We intend to undertake a careful review of the information and audit it, where necessary,” Sars states.
Going forward, the revenue service plans to write to affected taxpayers to request information about their offshore holdings. The request is for relevant material for risk assessment purposes that does not signal the commencement of an audit process but may inform future action.
However, Sars points out that taxpayers who want to regularise their tax affairs are still able to do so through the ongoing VDP, which offers more favourable terms for an assessment, in terms of penalty amounts.
“Sars, therefore, encourages taxpayers with undisclosed assets to take advantage of the VDP process. Taxpayers are reminded that failure to do so may result in administrative or even criminal action being taken against them,” cautions Sars.
A dedicated email address – firstname.lastname@example.org – has been set up to manage responses from affected taxpayers and adopt a consistent approach. Affected taxpayers who wish to make use of the ongoing VDP and taxpayers who have not yet been contacted are advised to contact the VDP unit directly at email@example.com.