New SARS tax compliance system sparks debate
The introduction of an enhanced Tax Compliance Status (TCS) system for South Africans taking money out of the country has sparked an intense debate. Some people call it “silent but violent”, while others say that it is nothing new.
This new TCS system was introduced on 24 April 2023 to replace the previous system, which has been used since 2016.
The South African Revenue Service (SARS) said in a media statement that this was due to increasing requests for Foreign Investment Allowances and tax emigration, pushing SARS to streamline the process.
The new TCS system replaces the separate approval processes for Foreign Investment Allowances and Emigration with a single system called the Approval for International Transfer (AIT) Application.
The aim is to make it easier for taxpayers to comply and “entrenches TCS verifications in government, the private sector, and individuals”, according to SARS.
The AIT system comes with no additional requirements. However, SARS will require additional information in line with existing requirements.
South Africans can still take R1 million out of the country without going through the TCS system.
However, any amount above R1 million, including part of an individual’s R10 million foreign investment allowance, will require the taxpayer to go through the TCS process.
SARS views people able to take over R1 million out of South Africa as “sophisticated taxpayers” who should reasonably have records of any major asset they own locally or globally.
In particular, SARS will demand information regarding the source of the money being taken offshore and a statement of assets and liabilities for the last three years.
This additional information will allow SARS to ensure all required tax payable is accounted for and address non-compliance.
“For compliant taxpayers, this makes it easy to take money offshore. It will be harder for any taxpayers unwilling to comply,” SARS said.
However, while this seems straightforward, there has been a debate among tax practitioners and investment managers around the implications of the new requirements.
Neill Hobbs, CEO of Hobbs Sinclair, told The Money Show that very little has changed.
Nothing has changed from a Reserve Bank perspective. South Africans can still take R1 million offshore with no questions asked.
The only application the Reserve Bank requires will be if an individual wishes to exceed their R10 million foreign investment allowance or to emigrate financially.
The changes only affect SARS’ process. Hobbs said it is merely requesting more information about the source of the money being taken offshore, which has already been a requirement since 2001.
If you are tax compliant, this should be a relatively easy process. The revenue service only wants additional information on existing requirements.
Silent but violent
The other side of the debate claims that foreign exchange controls are back after being relaxed in 1997.
Magnus Heystek, an investment strategist and director at Brenthurst Wealth, said the AIT system has “extreme and impractical” requirements which will push money out of South Africa.
He also said the system aims to stem the flow of capital out of the country, which has increased markedly over the last decade.
Previously, taxpayers had to disclose their local assets and liabilities. Under the new system, they will also have to include their foreign assets and liabilities.
Taxpayers will have to disclose any asset they own, according to Heystek, from stocks to crypto to livestock.
This is part of the National Treasury and SARS’ efforts to create a more stringent verification process and enhance voluntary compliance from high-net-worth individuals.