South Africa

South African luxury-goods buyers are under the spotlight

South Africa’s tax agency is investigating luxury-goods purchases as part of a clampdown on individuals it suspects deliberately hiding income sources from the authorities.

“We’re starting to look at who is buying luxury apparel, and we’re trying to find out where these people get their money,” Chief Revenue Officer Johnstone Makhubu said Monday at a conference hosted by The South African Institute of Taxation.

The project is a step toward giving tax authorities a broader view of people that “aren’t in our purview that we’d like to bring into the net,” he said.

The probe is part of the South African Revenue Service’s efforts to bolster tax compliance and rebuild capacity under Edward Kieswetter, who was appointed as commissioner in 2019.

The tax body was among institutions that were systematically hollowed out during former President Jacob Zuma’s nine-year rule to protect him and his allies from scrutiny, with a commission finding the agency suffered a “massive failure of governance and integrity” under former head Tom Moyane.

The tax office last year created a wealth unit to focus on high net-worth-individual taxpayers with complex financial arrangements. It also completed 25 lifestyle audits during the fiscal year through March, which flagged about R474 million of assessments that it’s now working to collect, Makhubu said.

He said that the South African Revenue Service is increasingly shifting toward marrying its traditional audit and accounting competencies with data engineering and analytics to improve compliance and ensure that initiatives like lifestyle audits become “hardwired” into its operations. Some data led to investigations into people suspected of siphoning money off faith-based organizations to fund their lifestyles, Makhubu said.

The agency also set up data exchanges that help it probe financial emigration, a process used by South Africans based abroad to cease their local tax residency. He said he had identified about 300,000 transactions exposed through the Pandora Papers for a possible investigation.

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