The South African Revenue Service (Sars) has made considerable progress in identifying South Africa’s high wealth individuals (HWIs).
Many of them have already been welcomed into the new HWI club by way of a personal letter signed by Sars Commissioner Edward Kieswetter.
The rejuvenated high wealth individual taxpayer unit is more in line with international best practice, says Elle-Sarah Rossato, tax controversy and dispute resolution leader at PwC.
The SA unit has been in existence for many years, and although not completely dismantled during former commissioner Tom Moyane’s leadership, has certainly been ‘disarmed’ to a large extent.
It is now being revived, bolstered and expanded, similarly to the Large Business Centre (LBC), which had also been ‘disarmed’ during the Moyane era.
Read: South Africa’s private wealth plunges (Apr 21)
Sars has used information obtained through the automatic exchange of financial information from other tax jurisdictions (offshore assets estimated at R400 billion), the deeds office (the property people own) and eNatis (the vehicles people own).
It also has access to aircraft registers and information from banks and other financial institutions.
Rossato, chair of the South African Institute of Tax Professionals’ tax administration committee, notes that the “old” unit didn’t always operate in line with similar units in other revenue authorities, or with suggestions by the Organisation for Economic Cooperation and Development (OECD).
The OECD started looking at “enhanced relationships” with wealthy and super wealthy individuals around 2008. It refers to a report that estimated the wealth held by high-net-worth individuals (HNWIs) to be $40.7 trillion in 2008. This was obviously before the financial crisis and the outbreak of the Covid-19 pandemic.
Segmentation of taxpayers
The OECD suggested the segmentation of HNWIs, similar to what a UK bank has done with its clients to determine the appropriate service offerings.
The bank – using 2014 figures – classified someone with investible assets of between £05.million and £5 million (R9.8 million to R98.2 million at the current exchange rate) as being affluent and someone with investible assets in excess of £20 million (R393 million) as being ultra-rich.
This segmentation has already been replicated by the Sars LBC.
It divides corporates into platinum, gold and silver ‘customers’ (or clusters) that are assigned a dedicated relationship manager.
The HWI unit replicates this model, however it is unclear how the segmentation is done or how a high net individual is defined since this information has not been shared publicly. Rossato doubts that it will be shared.
The UK unit has specialist teams which include a finance team, a rising stars team (people who have rapidly increasing wealth), a business investment tax relief team, an analysis and intelligence unit, and a dispute resolution team.
Read: Sars attack on South African taxpayers abroad (Apr 24)
Many of the international units have between 400 and 600 people operating almost like a mini-Sars, says Rossato.
The Australian Taxation Office has already calculated the net high-wealth income tax gap. The gap ranged between 6.5% and 8.2% during 2012 to 2018.
Although the South African unit aims to offer a dedicated service to individuals with complex structures and transactions, it also wants to close the perceived tax gap.
Complicated structures and transactions
Hugo van Zyl, cross-border tax specialist, says the concentration of skills in the dedicated unit will be beneficial for taxpayers whose affairs are so complex that it is impossible to deal with everything through the eFiling system or call centres.
“We need someone on Sars’s side who is knowledgeable and who understands the complexities …
“The call centre simply does not work when you are dealing with the tax affairs of a multi-millionaire,” says Van Zyl.
The revived unit has teams who are qualified and have already been alive to some legal inconsistencies. “When one of these senior Sars officials approaches National Treasury for clarity on law they have the necessary clout for treasury to listen.”
Some people will obviously not be happy about the unit, because they do not like the attention, says Van Zyl. Many of the taxpayers who have been “targeted” by the new unit have international assets, not for tax purposes, but for estate planning and to balance their portfolios, he remarks.
However, this may be an opportune time for taxpayers whose affairs have not been properly declared to make use of mechanisms such as the voluntary disclosure programme or other mechanisms to ensure their compliance is correct and can be properly verified, adds Rossato.
Privacy vs secrecy
The Society of Trust and Estate Practitioners, an international professional body for advisors who specialise in inheritance and succession planning, says many leading families are jealously guarding their privacy (as opposed to secrecy).
“The requirement of confidentiality is understood by many revenue authorities, while others regard confidentiality with suspicion. This is the cause of many conflicts between taxpayers and national tax authorities,” the body said in response to the OECD’s suggestions on enhanced relationships with wealthy individuals.
Rossato says many individuals who are not necessarily wealthy are also migrated to the dedicated unit, simply because of greater confidentiality and to prevent their information from being widely accessible within the revenue authority.
This includes people in senior government positions, and people of influence who may be exposed or exploited.
The shadily wealthy
Rossato doubts whether people who have been fingered in multi-million-rand tender scandals or who were singled out at the Zondo Commission of inquiry into allegations of state capture will be invited into the HWI club.
They will receive attention through projects initiated to address the illicit economy.
Van Zyl says the unit offers the opportunity for Sars to rebuild trust, provided the balance is kept between compliance and service; and that it is not used for fishing expeditions into taxpayers’ affairs.