Independent Newspapers

A woman tries on an expensive bracelet at Destinee Diamonds and Jewellery in Cape Town. Pressure to boost the fiscus may see a new focus on high-net-worth individuals in this months 2012/13 Budget. Photo: Melinda Stuurman.

The rich are in the firing line as tax authorities worldwide scramble to fill their coffers. And Johan van der Walt, a director at DLA Cliffe Dekker Hofmeyr, suggests South Africa’s high-net-worth individuals could take some heat in the upcoming Budget.

Finance Minister Pravin Gordhan, introducing the Taxation Laws Amendment Bills in November last year, highlighted the need for people to pay their fair share of taxes. He noted that leakages in both individual and corporate taxes had diverted funds from the government’s available resources.

“The consequence of these revenue losses ultimately means that government cannot pay its debts as they become due,” Gordhan said. And he referred to the experience of Greece and Italy where spending cuts by governments had led to job losses and civil unrest. “We must remain vigilant and confront sophisticated tax evasion in South Africa.”

In his medium-term budget speech in October last year he said: “Administrative reforms will continue to focus on ensuring that all those who earn an income through employment or other economic activity pay what is due to the fiscus.”

Van der Walt said: “SA Revenue Service (Sars) has already indicated that 9 300 high-net-worth individuals are under scrutiny.” The description “high net worth” is applied to people earning more than R7 million a year or with assets of more than R75m.

Beric Croome, a tax executive at Edward Nathan Sonnenbergs, said: “Sars is obtaining information from various sources… And it is collecting information about jewellery and art sales to establish if taxpayers with significant wealth report sufficient income to support their lifestyle. This is a lifestyle audit: are taxpayers living within their means or are there undisclosed amounts of income which should be taxed?”

He said tax authorities were already conducting joint audits between tax jurisdictions.

In an attempt to draw evaders into the net in South Africa, the government had a tax and exchange control voluntary disclosure programme that ran from November 2009 to October 2010. But little is know about the outcome.

Van der Walt said there was still a voluntary disclosure mechanism. “Taxpayers who have missed the boat would be able to come clean under the Tax Administration Act, once signed into law. However, the penalty and interest relief would be less generous.”

Talking of the global situation, Van der Walt said: “Italy is reported to have one of the world’s highest rates of tax evasion.” He described efforts to stem tax losses, including the use of sniffer dogs at borders. “The Greek government recently began naming and shaming tax evaders.”

Logan Wort, a director of the African Tax Administration Forum, said ongoing attempts to broaden the tax base in Africa had identified “currently difficult-to-tax areas” which included high-net-worth individuals. The individuals were often politically “connected”.

Any intervention announced in the Budget is likely to focus on compliance.

Croome said he would be surprised if the Treasury were to introduce a special tax for the wealthy. “A dedicated tax is always difficult to implement and administer and could be discriminatory under the constitution. The increase in tax rates is always a choice that (the) Treasury could exercise and would probably not be discriminatory. However, over the last few years (the) Treasury has chosen not to increase tax rates at the higher level of income and I would be surprised if this were to change now.” - Ethel Hazelhurst