Taxpayers offered opportunity to correct South Africa tax affairs

Individuals and companies can regularise their undisclosed or unauthorised foreign assets and associated income as of October 1 2016 under the SDVP, but the measure is still awaiting parliamentary approval to become law.

Nevertheless, taxpayers can use the scheme to submit voluntary disclosure, which will be assessed after the legislation has been passed.

The SVDP was announced in the 2016 budget and was initially set to offer non-compliant taxpayers an amnesty on offshore assets and income for six months until March 31 2017. However, new guidance on the measure confirms that the scheme will be available for nine months, from October until June 30 2017.

Furthermore, the tax rate charged under the scheme has been reduced by 10 percentage points since the draft regulations were published on July 20. Taxpayers will be subject to tax on 40% (previously 50%) of the highest value of the aggregate of all offshore assets between March 1 2010 and February 28 2015.

“The SVDP will grant those taxpayers who have long been thinking about regularising their tax affairs a great opportunity to do so. Most certainly, the fact that the rate at which undisclosed offshore assets will be taxed under the SVDP has been reduced to 40% may further motivate taxpayers to come forward,” said Lebo Motsumi, associate at Norton Rose Fulbright in Sandton.

Although the South Africa Revenue Service (SARS) offers a permanent voluntary disclosure programme for understating tax, the SVDP will be the last opportunity for taxpayers to declare offshore assets before SARS begins to receive offshore third party financial data from other tax authorities from September 2017 on a regular basis.

“Since the release of the SVDP draft bills, we have been inundated with requests by clients to explain the effect of the draft bills and the general view is that disclosing and paying tax in terms of the proposed relief is better than being caught by SARS and having to pay the full tax amount owing plus penalties,” Motsumi told International Tax Review.

“The granting of further relief in terms of the SVDP regime will most certainly go a long way in further expanding the tax base as it encourages taxpayers to come forward with undisclosed assets which the revenue authority would not otherwise have had privy to if not for the disclosure,” he added. “Of course, the looming starting date for the global standard for automatic exchange for information is a major motivating factor that taxpayers have taken into consideration in coming forward.”

The final legislative framework for the SVDP still needs to be introduced and passed by parliament and therefore tax assessments based on the SVDP disclosures will be concluded once the legislation has been approved.

Nevertheless, SARS and the South African Reserve Bank (SARB) have established a joint application process for tax and exchange declarations. Taxpayers can apply for tax relief under the scheme through the new SVDP section of the Voluntary Disclosure Programme form (VDP01) available on the SARS’s eFiling portal. Applications for exchange control relief may be made using the SVDP01 form available in the same location.

However, the Treasury warned that taxpayers using the enhanced VDP01 form will reflect the earlier SVDP proposals. “For example, the VDP01 will initially refer to a 50% inclusion rate, whereas the latest proposal is a 40% inclusion rate. Despite this, tax SVDP applications will be processed on the basis of the final SVDP legislative framework that is approved by parliament,” the Treasury said.