The South African Revenue Service’s (SARS’s) special High Wealth Individual (HWI) Unit has broadened its scope significantly since its inception and is upping the ante to get rich South Africans to pay their dues.
Speaking in a Pre-Indaba hosted by Tax Consulting SA, Director of the HWI Unit at SARS, Natasha Singh, noted that the unit started in 2021 with a singular focus on individual taxpayers that fit the profile of “high wealth” in the country.
However, since August 2022, the unit’s scope was broadened to look at these taxpayers as well as related entities like family trusts.
By doing so, the unit effectively tripled the tax base under focus.
Notably, trusts now make up around 30% of the HWI tax base under her unit’s purview, which carries a threshold of R75 million. And this number is expected to grow as the unit continues to map the extent of HNWI wealth and related tax affairs.
According to Singh, with the unit’s scope expanding to trusts, SARS is increasingly uncovering high levels of non-compliance from HWIs. She said that only six out of every ten trusts are tax compliant, with the remaining 40% “leaving a lot to be desired in terms of compliance”.
She said that the protection of generational wealth is a key goal for many high-net-worth individuals, so family trusts and similar structures are rising in the country.
However, this also invites a lot of “mischief”, she said.
“From a trust point of view, from a compliance perspective, we look at SARS’ four pillars. Our immediate concern is that trusts are registered on time, they file or submit returns on time, make payments on time, and that the declarations are reasonable in terms of validity, accuracy and completeness,” she said.
“Although we believe that, for the most part, trusts are effective vehicles for tax-compliant wealth planning purposes – we are of certain mischief that certain trust structures pose, and we are looking to address this.”
Singh said that SARS has observed the use of trusts to disguise the true nature of income – capital versus revenue – to shift the tax liability of taxpayers with lower tax rates, and to shift profits to lower-tax jurisdictions.
“But we are also concerned about those trusts that aim to be compliant; where they were set up to serve a legitimate purpose but for various reasons – maybe even just not knowing – they may be involved in lower levels of non-compliance.
“This is where we are hoping our voluntary compliance model and our key objectives, providing guidance and information, will help,” she said.
To this end, Singh said that SARS is leaning into digitisation and its growing tech focus to help automate many of these processes – not only to assist taxpayers with their tax obligations but also to catch those out who may not be as keen to become compliant.
Nowhere to hide
The HWI head said that the revenue service’s focus remains on wilful non-compliance, noting that the noose is tightening around those who actively skirt the law.
“We have a host of data, we are confident that we can root out non-compliance, and will use the full extent of the law to take the issue on,” she said.
She added that sharing information between stakeholders – local and international – is a “game-changer in offshore holdings and investments.”
“A lot of assets and funds are being detected that simply were never disclosed before,” she said.
Because of this, SARS is relying less on taxpayer declarations and increasing its focus on third-party data. This is also extending to newer channels, like crypto platforms and foreign exchange platforms.
The baseline is this: compliant taxpayers will have the easiest time with their tax affairs, she said, and non-compliant taxpayers will have the hardest time dealing with SARS, ultimately facing the full might of the taxman and the law.