SARS trying to ‘stop the bleeding’ of wealth out of South Africa

The South African Revenue Service (SARS) and the South African Reserve Bank (SARB) are getting more aggressive with their monitoring and control of money flowing out of the country.

On the face of it, the move appears to be in direct response to situations like the greylisting of South Africa by the Financial Action Task Force (FATF) and an attempt to clamp down on money laundering and counter-terrorist financing.

However, legal experts argue that the move could also be a way to stem the “bleeding” of wealth from South Africa by making it more difficult for the rich to make a clean cut from the country – taking their taxes with them.

SARS, along with the SARB, recently made it more difficult for South Africans to move money overseas. This was done through amendments to legislation to “enhance” the tax compliance status process, which requires anyone wanting to take money out the country to jump through a few more hoops.

The new “enhanced” Tax Compliance Status application form requires a person to make an “Approval International Transfer” (AIT) application if they wish to expatriate funds overseas.

The previous position allowed for any individual to transfer up to a total of R10 million per calendar year abroad through an authorised dealer by way of that individual’s Foreign Investment Allowance (FIA) with little fuss and with a few tax compliance obligations – such as obtaining a Tax Compliance Status (TCS) PIN.

Now, the amendments introduce the new mandatory application (AIT application) that must be made by an individual for that person to export capital funds abroad in excess of their annual discretionary allowance of R1 million per year.

According to Tanya Pollak, a partner at legal firm Eversheds Sutherland, the matter is more complicated in other ways.

SARS previously allowed for two types of TCS PINS to be processed for expatriation applications depending on the situation – namely, a FIA TCS PIN or an emigration TCS PIN, depending on whether the individual desired to utilise their annual FIA or whether they were making an emigration application, respectively.

Both of these applications have now been consolidated into one application, i.e., the AIT application.

“Essentially, the previously prevailing systems for FIA and emigration TCS PINS are no longer applicable, and all individuals must utilise the AIT application form and process for both of these purposes.

“Furthermore, the AIT application has also introduced a significant increase in disclosures and supporting documentation required by the individual to have their AIT application approved, which is largely dependent on the purpose of the foreign investment,” she said.

For example, all AIT applications must submit all material that demonstrates the source of the capital to be invested (whether local or foreign) and a statement of assets and liabilities for the previous three years – a significantly more onerous position which requires honest and accurate disclosures of the individual’s source and nature of funds to SARS (and consequently the SARB).

Once an AIT application is approved, SARS will issue the individual with an AIT TCS PIN, which enables authorised third parties to verify your tax compliance.

The single discretionary allowance of R1 million per calendar year for each individual is still in force; however, should any individual wish to expatriate larger quantities than this threshold, they will need to follow the AIT application process, along with all the additional disclosures, Pollak said.

While the new processes appear to be a way to give SARS and the SARB more meaningful control over money leaving the country to address shortfalls in money laundering and terrorism financing legislation (ie, the FATF greylisting issue), Pollak argues that other reasons may be behind the move.

“There is an abundance of speculation as to reasons for the mass exodus from South Africa of high-profile individuals overseas over the last few years, and there is no doubt that these sudden amendments are a consequence of this fact,” she said.

South Africa is bleeding wealthy citizens, with SARS even admitting to losing thousands of taxpayers each year. While South Africa does not track emigration numbers, population figures from the UN show that close to 1 million South Africans live abroad, over 128,000 of which have moved between 2015 and 2020.

Independent wealth reports have also shown a significant decline in high-net worth individuals – dollar millionaires – in the country, with thousands taking their money elsewhere. Trends show that middle-income earners are also starting to make the jump.

While SARS has tried to downplay these losses, it has simultaneously moved to be more aggressive in taking on the tax affairs of the wealthy, establishing a specialised unit to “help” them with tax compliance, while clamping down on various legal loopholes that have been exploited over the years to avoid paying what’s owed.

“The question now posed is whether South Africa’s immediate goals and response to aggressively regulate the disclosures and movement of high-wealth individuals – which this amendment largely impacts – is the right step for the country as a whole, or whether South Africa is trying to gauze the persistent slow bleeding of capital funds in its current socio-political economy,” Pollak said.

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