SARS going after two groups of South African taxpayers

The South African Revenue Service (SARS) is coming after remote workers and high-net-worth individuals with investments in different tax jurisdictions.

This is according to Professor Jennifer Roeleveld, international taxation expert and President of the International Fiscal Association (IFA) South Africa.

Roeleveld explained that countries worldwide are experiencing the erosion of their tax bases due to the global transition to a digital-first economy. 

“Tax authorities are therefore intensifying their focus on establishing the nexus between an individual or entity and their jurisdiction, giving them the right to tax,” she said.

She explained that the work-from-anywhere trend that boomed during the Covid-19 pandemic has led many countries to introduce digital nomad visas.

These visas enable employees to conduct business in other countries without registering for tax. South Africa introduced a remote work visa in May this year.

However, Roeleveld said the move to remote work had created loopholes and triggered unprecedented tax compliance complexities for employers, employees, and tax authorities.

“The challenge of taxing income earners who move between tax jurisdictions and high-net-worth individuals with investments in different countries is therefore high on the agenda for the world’s leading tax experts,” she said.

Joint research by the International Finance Corporation and Google, published in 2020, estimates that Africa’s digital economy will likely grow to $180 billion by 2025, accounting for 5.2% of the continent’s GDP. 

Roeleveld said this growth potential incentivises African countries, including South Africa, to amend tax regimes to claim their share of taxes.

“African countries are also grappling with an influx of highly digitalised multinational shopping platforms and service providers that do not set up a physical presence, thereby avoiding taxes,” Roeleveld explained.

“Current income tax regimes were not structured for a digital global economy, and tax authorities are therefore struggling to apply tax at source of income effectively.”

Compliance challenges

Bloomberg recently reported that South Africa’s plan to attract more professionals to its skills-starved economy by introducing this nomad visa for remote workers has been slowed by the need to amend tax regulations.

This came after an initial delay when changes to the visa regime had to be temporarily withdrawn because mandatory public consultation procedures had not been followed.

President Cyril Ramaphosa announced his intention to introduce the remote-working visa in his 2022 State of the Nation Address. 

“There is just a tax-related matter that needs to be addressed in the regulations,” Home Affairs Minister Leon Schreiber told Bloomberg. “Once that is done, the department will begin the rollout.”

South Africa’s byzantine work permit regime, which means that securing a work permit can take well over a year, has been flagged as a hurdle to economic growth by both the presidency and the country’s main business organizations. 

Still, a backlog of more than 300,000 applications for all kinds of residence permits has been halved since the GNU’s new cabinet was announced on 30 June.

The Home Affairs ministry initially proposed allowing people employed and paid by companies elsewhere to live in the country for as long as six months a year without paying tax, as long as they earned at least R1 million annually. 

In terms of high-net-worth individuals, Finance Minister Enoch Godongwana recently revealed that 1,156 individuals owe SARS more than R10 million each.

In response to a Parliamentary question, Godongwana said  1,156 South Africans owe SARS over R10 million each, amounting to R61.92 billion, including capital, interest, and penalties.

He added that 2,901 companies owe SARS over R10 million each, which amounts to R215.75 billion. It also includes capital, interest, and penalties.

Considering the billions owed to SARS by rich individuals and South African companies, it is hardly surprising that the revenue service is cracking down on non-compliance.

SARS launched its High Wealth Individual Unit in April 2021 to provide clarity and certainty to HWI taxpayers.

This unit aims to facilitate these individuals’ compliance with their tax regulations by offering specialised services.

“Our focus is to promote voluntary compliance, enhance revenue collection, and foster a fair tax environment,” SARS explained.

“As much as the HWI Unit is dedicated to assisting taxpayers with their legal obligations, we are equally committed to detecting and deterring non-compliance.”

SARS’ HWI Unit’s mandate is to deal with the complexity of HWI taxpayers’ tax affairs and afford them a differentiated and dedicated end-to-end service.

“By delivering an efficient service to HWI taxpayers, the HWI Unit aims to improve voluntary compliance,” the revenue service said.