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Changes to special voluntary disclosure programme proposed

This is an effort to simplify the process – National Treasury.

JOHANNESBURG – National Treasury has proposed changes to the Special Voluntary Disclosure Programme (SVDP) in an effort to simplify the process.

Finance Minister Pravin Gordhan announced during his Budget Speech that the voluntary disclosure rules that allow taxpayers with undisclosed offshore income and assets to regularise their affairs would be relaxed for a period of six months from October 1.

A similar amnesty applicable around 2003 raised between R3 billion and R7 billion for state coffers. It is estimated that foreign funds held by South African persons amounted to almost R70 billion at the time, of which almost R50 billion was undisclosed.

On Wednesday, National Treasury published the revised draft bills that proposed changes to the SVDP. The SVDP is an effort to give non-compliant taxpayers an opportunity to voluntarily disclose their offshore assets and income before the new global standard for the automatic exchange of information between tax authorities commences next year. This initiative will make it much more difficult for taxpayers to hide assets in offshore jurisdictions.

Keith Engel, chief executive of the South African Institute of Tax Professionals (Sait), says the original SVDP proposal required taxpayers to trace back the movement of their undisclosed assets for many years.

This was an unpopular requirement as the initial movement of assets may have happened decades ago and there may have been uncertainty about whether the amounts had previously been taxed or not.

“So nobody wanted to figure out what that initial contribution was because that was a very complicated calculation,” Engel says.

The new proposal is that the calculation should consist of one amount to be included in the taxpayer’s taxable income (instead of seed capital and investment returns), which is equal to 50% of the highest value of the aggregate of all assets situated outside South Africa between March 1, 2010 and February 28, 2015.  

The current proposal is more similar to the 2003 amnesty, he says.

Engel says while the five-year period is better than the requirement to trace back assets for much longer periods, it would have been better if the calculation could be made on a fixed date.

“[But] this is a big improvement over what was there originally,” he says.

Nel Schoeman, associate at Maitland, says the proposed inclusion of one amount would be a welcome development, as it avoids the issue of “seed capital” all together. The “seed capital” concept gave rise to significant concern in that there has not been a consensus on what its exact scope would be, in particular, whether it is limited to “pre-tax” money or not.

“If it were limited to pre-tax money, funds which have been deposited offshore by way of travellers’ cheques, for instance, would not be included under ‘seed capital’,” he says.

Another problematic element of the “seed capital” concept is that of proof, as the history of the origin of offshore funds often dates back to the 1960s or 1980s and taxpayers seldom have records to prove the flow of funds. This is typically the case when the funds have been passed down from previous generations, Schoeman adds.

The new proposal also states that the undeclared income that originally gave rise to the undisclosed assets should be exempt from income tax, donations tax and estate duty liabilities.

The original proposal only provided relief from income tax, Engel says.

“A lot of people will be happy about that. There are still a few who are arguing that you should also get VAT relief, but that was a minority view,” Engel says.

Pieter Faber, senior executive for tax and legislation at the South African Institute of Chartered Accountants (Saica), says the media statement expressly confirms that VAT, PAYE, UIF and SDL are not covered by the SVDP and that it must be dealt with under the normal VDP.

This may complicate matters as the applications would then have to be submitted simultaneously to avoid an audit or investigation from SVDP preventing normal VDP applying, he says.

Schoeman stresses that certainty is always of paramount importance when dealing with legislation.

“This is especially true in the current context, given the fact that the whole aim of a voluntary disclosure program is to encourage taxpayers to come forward voluntarily. Uncertainty as to what taxpayers would be liable for, should they walk through the door of voluntary disclosure (i.e. SVDP), could act as a major deterrent for many,” he says.  

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