JOHANNESBURG – Although exchange controls were relaxed earlier this month, some industry players say Sars’ procedures still leave them in the same position they were before: that is they get tax clearance on amounts up to R4 million – within a few days – but are referred for audit where amounts exceed R4 million.
In the February Budget Review, National Treasury indicated that South African residents’ (individuals only) foreign capital allowance would increase from R4 million to R10 million per calendar year from April 1 this year.
This created the expectation among several industry players and applicants that tax clearance for the increased amount could be obtained in the same fairly quick fashion, as was the case for the R4 million limit. Taxpayers need a tax clearance certificate to convert their rands to foreign currency.
Moneyweb understands that tax clearance certificates were issued within two to seven days for applications up to R4 million.
Where larger amounts were involved (South Africans could externalise amounts in excess of R4 million before April 1) a tax audit was done and it could take several months to obtain a tax compliance letter.
However, a number of industry players say the current Sars process effectively leaves them in the same position they were before April 1 – when an application for more than R4 million is made, the application is referred for audit.
In an e-mail sent to clients, Peregrine FX says it has been advised by The South African Revenue Services that their systems are unable to process these applications successfully.
“The opinions and discussions between The South African Reserve Bank / The South African Revenue Service and The Department of Finance as to the way forward are still proceeding and during this time, we have approached The South African Reserve Bank with a urgent request to explain the way forward.
“With no clear procedure in place at The South African Revenue Services, this leaves us in the unfortunate position that no application (over and above R4 million) can be processed,” it wrote.
Nico le Roux, chief executive officer of Incompass Group, says they submitted the first few applications for R10 million last week and Sars indicated that its systems weren’t 100% ready for these applications, but that it would “override” the issue this week.
The applications were resubmitted this week, but problems persisted.
Le Roux says it is unclear whether this was an isolated issue, but the submissions were made to the same person who usually deals with tax clearance applications.
He expects the issue to be resolved within the next two to four weeks.
Wichard Cilliers, chief dealer at TreasuryOne, says their applications for R10 million were also treated as they were before April 1.
Matt Lawson, director for South Africa at Exchange4free, says the R4 million applications and below still have the same requirements and are relatively easy to attain provided the client’s tax affairs are in order.
Any applications above the R4 million threshold are treated as applications to exceed allowances. This is irrespective of the clearance being for R10 million or R100 million, and these applications are sent off to an executive and all clients are open to full audit, he says.
Lawson says the South African Reserve Bank (Sarb) and Treasury have increased the allowances but Sars processes still remain the same and the R10 million allowance is yet to be streamlined.
“Our dealings with Sars certainly indicate that this will change and they will amend the application process accordingly but only time will tell I suppose,” he says.
Lawson says the major issue on the new R10 million allowance is turnaround times. Essentially the R4 million allowance is issued within reasonable time but at this stage they have no indication on the issuing times for the new R10 million clearance.
Ernest Mazansky, head of tax at Werksmans Attorneys, says the issue is a temporary glitch.
“I think Sars heard about it the same time that the rest of us heard about it [the change from R4 million to R10 million) which was on Budget day and they haven’t managed yet to update their IT systems,” he says.
He believes it will be sorted out in the next couple of weeks and that South African individuals would be able to get a tax clearance certificate for up to R10 million in the same way as they did for R4 million, without triggering an audit.
Luther Lebelo, executive: employment relations at Sars, says Sars does process all applications for clearance whether they are for amounts below or above R4 million.
“Sars does though do a more substantial review when the amount exceeds R4 million. The purpose of these reviews is to ensure that the person applying for the Foreign Investment Allowance is tax compliant and has declared the correct income,” he says.
On completion of the review a letter of compliance is issued (as opposed to a tax compliance certificate for cases below R4 million) for cases above R4 million, Lebelo says.
Mark Kingon, group executive: operational service escalations and support at Sars, says in all matters pertaining to Foreign Investment Allowances, Sars must ensure that the person is fully tax compliant before approving a clearance for the funds involved.
“These risks are determined for all cases whether below R4 million or not. Very importantly Sars will continue to apply processes in a manner which best deals with the risk related to the matters.”
Kingon says Sars processes all applications for Foreign Investment Allowances regardless of the amount involved. There is a standard operating process internally dealing with this.
In the process, Sars applies various risk rules with the aim of identifying possible leakages in the South African tax base. The risk rules applied during this process are not all necessarily dependant on the threshold set for exchange control purposes, he says.
All cases, irrespective of the amount involved are submitted at a Sars branch on the form FIA001. For cases below R4 million a tax clearance certificate is issued and printed off the Sars system when it is approved. These certificates are collected at a Sars branch, he says.
Similarly, for cases above R4 million, once approved, a tax clearance certificate is also issued, the only difference being that the certificate is issued by way of a letter by the Sars Case Selection team and is sent by e-mail to the client, he says.
Once issued, the tax clearance certificate can be presented to the applicant’s Commercial Bank for processing, he says.
“It is important to note that the purpose of the rules relating to the Foreign Investment Allowance are directed toward protecting the South African tax base. These rules remained the same despite that the foreign exchange allowance changed.
“Sars continually reviews the risk rules and when Sars is comfortable to adjust the rules Sars will adjust the rules, but until then the rule remains the same,” he says.