 South Africans living or working abroad can no longer avoid the long arm of SARS. Under pressure to meet its revenue quotas, the tax authority has started auditing the country’s non-compliant expatriates in earnest.
“We have been warning expatriates that this was coming and now that it’s here, the time for hiding one’s head in the sand is over,” says Jonty Leon, Legal Manager (Expatriate Tax) at Tax Consulting SA. He advises those intending to relocate to another country to follow the formal exit procedures and, most importantly, ensure their tax affairs are in order beforehand. He also advises that those that have already left permanently, should ensure that they have done so in a compliant manner, and have had themselves noted as non-resident for tax purposes. Gone, but not forgotten Whether a South African must declare their worldwide income and pay tax on it to SARS is determined by their tax residency status, not their physical location or period outside the country. Leon states, “Tax residency of South Africa is not determined solely on the amount of time spent in the Republic, this is a far more complex issue which must be technically dealt with in terms of the law.” The safest route to remove ambiguity on tax residency status is to follow the formal financial emigration process. This process is being changed and a new more stringent regime will be implemented from 1 March 2021. This may come as a shock to those who believe that, once they set foot on foreign soil, they are free from any further tax obligation to South Africa. More so for those who left the country without settling their tax debt, even if they have been gone for decades. “With stricter legislation to back its efforts and an emerging system of global financial data sharing as wind in its sails, SARS is more than capable of detecting taxpayers who historically flew under its radar,” says Leon. The warning signs According to Leon, several warning signs arose over the past year. The first was changes to the expatriate tax laws that came into effect on 1 March 2020, soon after SARS launched its dedicated Foreign Employment Unit, which is focused on South Africans working abroad. The second warning was the announcement that the current financial emigration law would be amended, which in the past has been successful in confirming with SARS and SARB one’s non-resident status. The change will inherently make it more difficult to cease tax residency and with a new and, as yet, undisclosed replacement process on the horizon, there has been a massive influx of applications to beat the deadline. The third sign was the removal of the term “wilfully” from the Tax Administration Act when dealing with non-compliance, giving SARS greater leverage to prosecute anyone claiming negligence when failing to meet their tax obligations. This is in line with the reasoning for the change in the expatriate tax legislation previously, where the rife tax non-compliance of South Africans abroad was noted during Parliamentary sessions in August 2017. Lastly, SARS has begun a two-pronged attack strategy: - Firstly, through audits calling for individual expatriates to prove they are non-residents and justify their intentions – some audits calling for proof that the taxpayer had obtained an Emigration Tax Clearance Certificate when leaving South Africa; and - Secondly, by audits on offshore income revealed through the common reporting standard (CRS). According to Leon, this comes as no surprise, as SARS is targeting those who have historically been able to “hide” assets and funds, but which will no longer be possible due to the exchange of information between jurisdictions. Options Leon says South African expatriates and those wishing to emigrate still have several options available to them. For one, they can urgently apply for financial emigration until March 2021. “National Treasury confirmed that applications submitted prior to that date will be processed under current legislation,” he says. They can also take advantage of any double tax agreement between their chosen country and South Africa. As the tax implications of such agreements vary between jurisdictions and the fact that these agreements do not apply automatically to the taxpayer, they should seek advice from an expatriate tax expert. Above all, if an expatriate is not tax compliant, they can approach SARS under the Voluntary Disclosure Programme to pay their back taxes along with interest and penalties but without prosecution. This process must also be undertaken very carefully, as specific requirements must be met. “SARS has the advantage now, so waiting to see what happens is a course of action I do not recommend,” says Leon. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa
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Authored by: Jean-Louis Nel, tax attorney at Tax Consulting SA
Earlier this month, the Pretoria High Court granted a small business owner an urgent basis for relief against the South African Revenue Service (SARS) who depleted his bank account without following due process. The court ordered SARS to set aside the third appointment of Absa who collected R1.3-million on behalf of SARS from the taxpayer’s bank account in terms of Section 179 of the Tax Administration Act (TAA). The Court further ordered SARS to repay the amount collected from the taxpayer’s bank account, together with the costs of the application on a punitive scale within three business days after granting the order. This occurred shortly after the SIP Project Managers vs SARS Commissioner case whereby the court ruled against SARS in respect of third-party appointments to collect outstanding tax debts. Case background In this case the taxpayer was left with a frozen and empty bank account without any prior notification from SARS. When he realised SARS had collected the full balance of his bank account, he immediately contacted his tax advisor to enquire about his tax compliance. The tax advisor engaged with SARS, advising them of the situation and what detrimental financial effect their conduct has had on the taxpayer where it was apparent that there was no tax debt. The taxpayer had already closed two of his three shops in Johannesburg due to the collection proceedings. SARS undertook to investigate the matter but there was no sign of a quick resolution to the issue. Due to the urgency of the matter the taxpayer instructed his attorneys to approach the Pretoria High Court on an urgent basis. At the time of urgent application and prior to the third-party appointment by SARS, the taxpayer’s affairs for both Income Tax and Value Added Tax (the only two taxes he was registered for) were fully compliant. In fact, it materialised that SARS owed the taxpayer a nominal amount. The correct process In these difficult fiscal times, SARS is expected to exercise its considerable power to collect the correct amount of taxes to the benefit of the fiscus. However, this does not mean that rogue officials can act outside the law and appoint banks as collection agents, as they see fit. There are clear rules that must be followed, and this is to the benefit of society, which requires efficient revenue collection, but not abuse of SARS power. In terms of the TAA, the taxpayer has to be notified of any outstanding debt and the subsequent appointment of a third party, such as his bank, to collect the tax if no action is taken by the taxpayer to regularise their tax affairs. If SARS does not properly issue the final letter of demand it is precluded from taking collection steps in the normal cause. It is a peremptory requirement in the TAA for SARS to issue a final letter of demand to the taxpayer, ten (10) business days before SARS can appoint a third party to collect outstanding debt and this was recently also confirmed in SIP Project Managers-judgment. It is imperative that a taxpayer ensure that their rights are protected, especially during the unprecedented times of COVID-19, where we have seen that SARS has adopted a firmer position in collecting outstanding debt. SARS oversight There remains an unbalanced position in our tax administration law, which does not allow SARS officials to be held accountable for their actions. The Tax Ombud’s powers are restricted, as can be seen from their latest report where SARS appears to have flat out refused the Ombud to interview the implicated SARS officials. It is also unclear whether the Commissioner is acting against his officials internally. For now, a taxpayer’s only remedy appears to approach the High Court for relief. The Pretoria High Court has in both matters before Acting Judges Lingenfelder and Avvakoumides, respectively protected taxpayer’s Constitutionally enshrined rights against SARS.  Authored by: Thomas Lobban, Jean Du Toit & Jonty Leon from Tax Consulting SA
This week, on 26 November 2019, the National Assembly passed the latest tax bills, which is set to be promulgated by the President after it has been passed by the National Council of Provinces. On the face of it, some concessions have been made for individual taxpayers, but these offer cold comfort in the bigger scheme. Proposed Amendments Before we get to the truly profound implications, it is important to note the following amendments:
At first glance, it appears that there are no profound amendments to the Income Tax Act or the Tax Administration Act that would raid the pockets of taxpayers, to generate additional revenue. This is peculiar, since the prevailing budget deficit is a massive elephant in a room with grim economic prospects and a junk credit rating. However, taxpayers must not be fooled. In the current economic climate and with SARS so far behind on collection, it is unlikely that the 2019 legislative cycle would not have been put to good use the drum up some more money. Government is smart enough to understand that big changes cause controversy, as we have seen with the VAT rate increase or the amendment to the exemption on foreign employment income. With no such amendments, were taxpayers truly given a tax break in light of the current economic landscape? No Change Means More Revenue In truth, the biggest change by far is not a change at all, nor is it actually found in the Income Tax Act or Tax Administration Act. The Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2019 proposes no amendment to the tax brackets which prescribe the rates of tax applicable to individual taxpayers. In a country with a relatively high inflation rate, this is a problem, since the salaries of employees generally increase in line with inflation. Where the tax brackets do not increase correspondingly, this results in so-called “bracket creep”. In real terms, while this means that individuals are technically earning more, they are actually taking home less pay each month as compared to the previous year. In fact, in many cases taxpayers may be pushed into a higher tax bracket. The upshot is the taxpayer’s pay increase is wiped out by additional taxes. It should also be mentioned that this is the second year in a row that the tax brackets have not been increased, which means that taxpayers will need to further reduce their cost of living for another year, in order to make ends meet. While this will not necessarily affect lower income earners, it will certainly have a significant impact on the already overburdened taxpayers in the middle- and higher-income brackets. This also affects those who will be withdrawing lump sum benefits from their pension interest. In this case, the special tax rates applicable to these amounts also remain unchanged. This means that these persons will be forced to enter into retirement with less cash available to defray their cost of living – an unfortunate consequence of bracket creep. Say Good-Bye to South Africa’s High Earners The long-term effect of these changes (or lack thereof) can only realistically be determined over time. This is an effective measure to generate revenue over the short term, but the question must be asked; how much financial constraint taxpayers are willing take before it becomes unsustainable and individuals simply decide to leave South Africa? We have already seen a massive jump in South Africans deciding to leave the tax net by formally noting their non-resident status by financially emigrating from South Africa. As it stands, National Treasury is already relying heavily on the higher earning segment of the individual tax base and measures like these forces the hand of taxpayers who are already contemplating their departure. Ultimately, we lose important taxpayers and their descendants to the tax base permanently, which leads to less revenue for government. Cunning as it may be, it would seem that government’s band aid is a temporary fix that will exacerbate a far larger problem. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa |
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