An incentive to own up your transgressions
If you still have money stashed overseas that involved a contravention of the exchange control regulations or local money or assets that you have not declared for tax purposes, you will soon have another opportunity to come clean with the tax and exchange control authorities.
The break is not a tax amnesty as we have had in the past because you must still pay tax, but you can put right both your tax affairs and any contraventions of exchange controls. If you declare taxes you should have paid or overseas assets that you have not declared previously, you will have to pay what you owe, but will escape any additional tax, penalties and interest.
In addition, no further action that the tax and exchange control authorities might otherwise have taken will be taken against you.
This “”Voluntary Disclosure Programme”” was announced in the Budget earlier this year. It will run from November 1 this year until October 31 next year.
At a briefing for Parliaments portfolio committee on finance earlier this month, South African Revenue Service (SARS) and South African Reserve Bank officials said they understood from taxpayer representatives that a significant number of people did not make use of the previous amnesty in 2003 and 2004 but now wished to regularise their affairs.
The previous amnesty was only for the benefit of individuals. This time corporates are included.
The disclosure programme will be open to you only if you come forward voluntarily. Franz Tomasek, the general manager for legislation at SARS, told the finance committee that if SARS has already invested the time and resources to investigate your affairs, it is not in societys interest for SARS to let you off.
If you are already being audited or investigated by SARS for a failure to, for example, pay one kind of tax, you may still be allowed to declare other breaches of the law regarding other taxes that SARS would otherwise not have uncovered.
In such cases, SARS will not apply any penalties or prosecute you, but you will still be liable for half of the interest on the tax for which you are in default.
Tom Coetzee, the assistant general manager at the Reserve Bank, told the finance committee the exchange control amnesty will apply to South African residents, unless they are aware of an investigation or pending investigation against them for an exchange control contravention.
Reserve Bank officials will, however, be able to recommend that people whom it is investigating participate in the Voluntary Disclosure Programme.
You can enjoy full relief from exchange control contraventions if you make a full disclosure of your contravention and prove the value of the assets you left overseas when you immigrated to South Africa or when you returned home after working overseas while it was still necessary to declare money earned overseas to the Reserve Bank.
Full relief is also available to you if you inherited offshore funds or assets without declaring them while it was still necessary to do so, or if you raised a loan overseas without Reserve Bank permission (see “”Who needs to use the Voluntary Disclosure Programme?””).
Your offshore assets will be offset against any unused portion of the R4 million you are allowed to take offshore in terms of the exchange control regulations. If the amount you took out of South Africa in contravention of exchange controls exceeds the unused portion of your offshore allowance, you will pay a levy on that amount.
You will also pay a levy if you contravened the exchange control regulations to take money or assets out of the country by way of dividends paid to offshore structures that invest in revenue generating companies in South Africa, or if you made donations to offshore discretionary trusts.
If you pay the levy from your offshore assets, it will be 10 percent of the value of your assets as at February 28 this year. If you pay the levy from local funds, it will be 12 percent of their value.
The exchange control offence must have occurred before February 28 this year. Coetzee says the Reserve Bank has had to set a cut-off date to prevent people contravening the exchange controls and then asking the Reserve Bank to condone their actions when the programme begins.
Tomasek says potential issues with the Financial Intelligence Centre (FIC), such as whether advisers would need to report Voluntary Disclosure Programme applicants to the FIC, are being discussed.
THE NEED FOR A PARDON
Ismail Momoniat, the deputy director-general at the Treasury, told Parliament’s finance portfolio the turbulence in financial markets has resulted in changes
in various tax havens and has spurred a move to “a world where you cannot hide your riches in other lands”.
He says the Treasury therefore felt it was important to encourage people to come forward and correct their affairs.
Franz Tomasek from SARS says SARS is aware that some taxpayers want to declare their defaults but are discouraged by the penalties and interest that SARS can charge.
He says that although SARS has had a long-standing tradition of reducing penalties when taxpayers come forward voluntarily to sort out their tax affairs, the interest must, in many cases, still be paid.
SARS does have the discretion to waive interest on unpaid provisional tax, but once the Voluntary Disclosure Programme begins in November, SARS will no longer have this discretion. He says the reason for removing this discretion is that if you have not paid tax you owe to SARS, you have had the use of the money, and SARS needs to be compensated for its time value.
In addition, he says, people need to be discouraged from not paying their taxes on time, and the added interest serves as a disincentive.
The Reserve Bank’s Tom Coetzee told the committee that the 2003/4 tax and exchange control amnesty was a success, although at the time many people viewed it with scepticism, fearing they would be subjected to a witch hunt. But, he says, those who took part “have been able to sleep well after coming clean”.
Coetzee says almost 43 000 people participated in the 2003/4 amnesty, declaring assets worth R68.6 billion, a substantial portion of which was repatriated.
WHO NEEDS TO MAKE USE OF THE VOLUNTARY DISCLOSURE PROGRAMME?
You should make use of the Voluntary Disclosure Programme to declare illegal offshore assets to an authorised exchange control dealer if you have not yet put your affairs in order and you:
– Immigrated to South Africa without declaring the assets that you left overseas;
– Earned money while working abroad and left the money offshore when you returned to South Africa before July 1, 1997;
– Inherited assets overseas before March 17, 1998 and did not declare them to the Reserve Bank;
– Exported money from South Africa in contravention of the exchange controls; and/or
– Failed to repatriate unspent travel allowances.
You should make use of the programme to sort out your tax affairs if you have failed to:
– Declare income from offshore assets, regardless of how they were acquired;
– Declare any income earned from any source in the world or if you have under-reported income to SARS; or
– Declare any capital gains to SARS.