South African Minister of Finance Enoch Godongwana, delivering the 2022 Budget Speech on 23 February, announced a further proposal to target wealthy taxpayers in the coming year as part of a broader disclosure of wealth programme.
Currently provisional taxpayers with business interests are required to declare their assets (at cost) on their tax returns. To assist with the detection of non-compliance and fraud, it is proposed that taxpayers with assets above ZAR50 million will be required to declare specified assets and liabilities at market values in their 2023 returns.
“The additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee,” said Godongwana.
South African Revenue Service (SARS) is targeting non-compliant taxpayers with overseas assets. In February 2021, it set up a separate wealth unit – High Wealth Individual Taxpayer Segment (HWI) – specifically to focus on individual taxpayers with wealth and complex financial arrangements.
When Natasha Singh was appointed Director of the HWI Unit in October, SARS indicated that it had initially selected about 1,500 wealthy individuals and their related entities to be investigated for compliance purposes, but that it would extend its reach to include more individuals and families. SARS has estimated that local taxpayers hold overseas assets of more than ZAR400 billion.
SARS Commissioner Edward Kieswetter said the new division would be focused on “improving visibility” and gaining a holistic view of these taxpayers’ assets and income, for now. It had three principal intentions for taxpayers in this bracket:
- To provide certainty and clarity and enable them to fully understand their tax obligations.
- To ease compliance and enable them to pay tax with the least amount of fuss.
- To strengthen SARS’s ability to respond and have a clear view of what it was facing.
“For honest taxpayers, this new division will help simplify their taxes and make things easier, but where we suspect dishonesty, SARS will come down hard and be vigilant for any potential corruption or attempts to hide assets,” he said.
Other proposals of interest in the Budget Speech included:
- An amendment to prevent individual’s taxpayers who are ceasing tax residency from doubling-up on certain exemptions or exclusions that are allowed per year of assessment, most notably the capital gains annual exclusion and interest exemption, when their tax year is split into two during the 12‐month period.
- The government proposes to initiate negotiations multiple tax treaties this year to ensure that South Africa retains taxing rights on payments from local retirement funds when an individual taxpayer ceases to be a South African tax resident.
- The domestic tax exemption on foreign retirement benefits will be reviewed.
- Resident individuals may receive and retain gifts from non-residents offshore.
- Residents may lend or dispose of authorised foreign assets held offshore to other South African residents, subject to local tax disclosure and compliance.
- As announced in the 2021 Budget, the corporate income tax rate will be reduced from 28% to 27% for companies with years of assessment ending on or after 31 March 2023. This is linked to other initiatives to broaden the tax base, including the limitation of loss set off.
- The government confirmed its intention to introduce the OECD’s two pillar solution in respect of its base erosion and profit shifting (BEPS) initiative by 2023, which will require the signing of multilateral international treaties and significant re-engineering of domestic tax laws.
