South African banks may soon have new discretionary powers to hold banking transactions if they suspect a tax offence has taken place, according to proposed changes to tax laws.
Under the current Tax Administration Act, a bank is obligated report to SARS if it has a reasonable suspicion that the payment of an amount is related to a tax offence.
Then, if instructed to do so by SARS, the bank will hold the funds for two business days pending an investigation by SARS, unless SARS or the High Court directs otherwise.
Now, under the new amendments released for comment on 19 July 2017, the funds in question will be secured (held) as soon as the bank reports the transaction to SARS, at which point the two business days will commence.
According to Webber Wentzel’s Rudi Katzke, this will allow banks to act more swiftly against suspicious transactions – but warns that banks should tread carefully, as it could put their reputations at risk.
“It appears that members of the financial sector were not satisfied that this provision enabled sufficiently prompt action in cases where a tax offence was suspected,” Katzke said.
“Based on their lobbying efforts, the Draft Tax Administration Laws Amendment Bill accordingly proposes to do away with the requirement that the bank must first obtain SARS’ permission to place the hold on such a transaction. The provision remains otherwise unchanged.”
Katzke warned that, while swift action was necessary, it was also necessary for banks to only use this power if their suspicions in this regard are truly reasonable.
“If a banking client requires a bona fide, legitimate transaction to be carried out swiftly – particularly where large amounts are involved – a bank may foreseeably open itself up to liability and reputational damage if it places a hold on a transaction based on ultimately unjustified suspicions of a tax offence in motion,” he said.