Special voluntary disclosure: More stick than carrot?

The special voluntary disclosure programme (SVDP) – an effort that will allow taxpayers with undisclosed offshore income and assets to regularise their affairs – may be too punitive to encourage optimal uptake, tax experts have warned.

Finance Minister Pravin Gordhan announced during the 2016 Budget that the voluntary disclosure programme would be relaxed for a period of six months from October 1 in anticipation of the automatic exchange of information between tax authorities that will commence next year. This will make it much more difficult for taxpayers to hide their offshore assets.

A 2003 amnesty similar to the SVDP raised between R3 billion and R7 billion.

The recent announcement comes amid efforts to reduce South Africa’s budget deficit while at the same time addressing unemployment, poverty and inequality.

Johan van der Walt, head of dispute resolution and tax controversy services at KPMG in South Africa, says at this stage it is very difficult to speculate on the amount of tax revenue the SVDP is likely to collect.

A lot of South African money offshore has not been regularised, he says.

Conversations with gatekeepers – wealth managers, banks and trust companies in Switzerland, the UK, Jersey and Guernsey – suggest that there could be a substantial uptake in light of the increased international transparency if the SVDP terms are attractive, he adds.

Van der Walt says when the tax elements of the SVDP and the levies applicable to exchange control are taken into account, taxpayers can take quite a significant hit on their capital. As a result taxpayers might decide not to come clean, move the funds or leave South Africa.

“The South African regime… is certainly one of the more expensive regularisation processes and that could mean that the uptake is not optimal, but it is very difficult to say because a lot of these discussions are only starting now and people are feeling their way and actually waiting for total certainty regarding the parameters.”

Van der Walt says when the exchange control levy and tax are taken into account some taxpayers will effectively take a 30% hit on their capital. International indications suggest that once taxpayers have to go beyond 15% towards 20% the disincentive starts kicking in.

Heinrich Louw, senior associate at Cliffe Dekker Hofmeyr, says if the relief is not sufficient taxpayers won’t regularise their affairs, but the automatic exchange of information is a significant concern for some taxpayers, and this may encourage them to spill the beans.

He says that, on the current draft documentation, a lot of taxpayers won’t qualify for the SVDP and will have to go through the normal VDP process, in which case there will be no special exchange control relief.

Louw says his sense is that the SVDP may raise less money than the 2003 amnesty, but in light of the uncertainty about the final methodology, it is too early to speculate about numbers.

Judy Snyman, fiduciary specialist at AlphaWealth, says if taxpayers don’t make use of the SVDP they will likely face dire consequences if the South African Revenue Service (Sars) uncovers offshore assets that haven’t been declared at a later stage.

There will be no mercy and taxpayers will likely have to pay the maximum penalties as they would have had several opportunities to come clean. For this reason, it is probably advisable for affected taxpayers to make use of the SVDP regardless of the penalties as they will be worse off if authorities uncover non-compliance at a later stage, she says.

National Treasury recently proposed changes to the SVDP to simplify the process. This followed after the initial Budget proposal and a previous request for public comment in April.

Van der Walt says it appears unlikely that the parameters and the relief offered will change substantially from the current proposals.

Treasury did not respond to a request for comment by time of publication.

 

Source: MoneyWeb