So called high-net-worth-individuals came under the spotlight during the announcement by the South African Revenue Service (SARS) of its preliminary revenue results on 1 April 2021 after a year of National COVID-19 lockdown regulations. “The extra out-of-ordinary pandemic circumstances changed the economic landscape and the way SARS operates to collect the tax revenue due. The main drivers of the reported revenue are the impact of renewed tax administrative efforts to improve taxpayer compliance, domestic and global constraints on economic activities and the related tax relief measures implemented in lieu of the COVID-19 pandemic restrictions,” according to SARS.
For the period ending 31 March 2021, SARS collected a gross amount of R1 541.1 billion which was offset by refunds of R290.9 billion, resulting in net collections of R 1 250.2 billion, versus Budget 2021 Revised Estimate of R1 212.2 billion, and which represented a contraction of –R105.6 billion ( -7.8%) against the 2019/20 financial year. ““A year-on-year improvement of 26.8 percent on compliance cash collected and a reduced revenue leakage through refunds so in total to the compliance effort of SARS have resulted in an additional R158-billion in the year that we report,” Edward Kieswetter, SARS Commissioner, mentioned at a media briefing.
Focus on high-net-worth individuals
In his presentation Kieswetter indicated that the tax collector has profiled a number of high-net-worth individuals in the country who enjoy a ‘luxurious’ lifestyle and demonstrate unexplained wealth compared to their declared income. He mentioned that SARS has the ability to access a number of databases that track high-ticket items, such as luxury cars and expensive property.
According to Kieswetter, although chasing after tax evaders is hard work, the results are pleasing. “We are beginning to see some results in that regard. We have already collected R4.5 billion in taxes by using this process. Last year we also reported through our normal volunteer disclosure programme, we collected R3.5 billion from 1 800 applications. Our approach is to go to South Africans and say disclose the information you have fully and on a voluntary basis. And really it is an appeal to South Africans to say come to us before we come to you and we have a friendly conversation.”
The Commissioner also announced that Judge Dennis Davis will be joining the tax collector on a more permanent basis, as it puts a larger focus on wealthy South Africans.
SARS will focus on closing the ‘tax gap’ in the case of an increasing number of South Africans who have more than R400 billion rand in offshore accounts. We’ve identified around 10% of that, but we believe there’s still a lot to be explained on these undeclared assets . The tax committee, headed by Judge Dennis Davis, has given its support to lifestyle audits for wealthy South Africans as a means of clamping down on tax avoidance.
Online lifestyle may add to trouble
“The gravitas of this commitment by SARS should not be taken lightly by High Net Worth Individuals (HNWI), particularly if your lifestyle on social media is not reconcilable with your declared tax information which may result in a one-way ticket to jail in light of the recent amendments to Section 234 of the Tax Administration Act No 28 of 2011,” according to Jean-Louis Nel of Tax Consulting.
Nel points out that it has recently been proven that SARS’ teeth have been sharpened to match declared income and the apparent tax liability owed to the fiscus, when SARS successfully obtained a preservation order in the Pretoria High Court against the luxury-car-loving businessman, Thabiso Hamilton Ndlovu, who had taken to social media to flaunt his recently acquired vehicles to the value of R10,5-million which did not sit well with SARS officials.
“SARS, in obtaining the relief against the taxpayer, did not rely on the legality of the business or the tenders awarded to Ndlovu or any of the associated companies, but rather on the gross non-compliance with the respective tax legislations by the taxpayer. The information available to SARS, including photographs of the vehicles of the taxpayer on social media, could not be reconciled with what was declared by the taxpayer, which gave rise to the investigation of Ndlovu’s tax affairs, and SARS seeking justice from the courts.”
The acting Deputy Judge President of the Gauteng division, Roland Sutherland, noted the following in respect of Ndlovu’s tax compliance:
“The delinquency in the rendering of the tax returns is an obvious and strong indication that the taxpayer is, at best, irresponsible and, at worst, is hiding income. When the conduct occurs over several years the inference of deliberate resistance to the payment of tax becomes even stronger.”
According to Nel, it is expected that SARS will apply the same methodology, including reviewing taxpayer’s social media accounts, when considering the tax affairs of HNWI, and where there is a want for compliance with the respective tax legislations, SARS will act accordingly, and the courts do not take non-compliance lightly, as can be seen in the Ndlovu matter.
While the Zondo commission is receiving huge media coverage, very little has happened in terms of prosecuting alleged criminal activities. Al Capone was jailed for tax transgressions, not his other criminal activities. Perhaps it is time to follow this route here too, until the NPA has been restored to full operating capacity. It appears that the tax laws make it easier to obtain financial records, which can then be used by the NPA to prosecute transgressors.