If you’ve got assets stashed away in some offshore account you need to sit up and pay attention. Yes, you! Gone are the days where you could stow your money abroad, earn interest and not pay tax on it. Thanks to something called the Special Voluntary Disclosure Programme (SVDP/VDP) the South African government will come after you like Thuli Madonsela hot on the heels of a Nkandla scandal, if you don’t declare your interest earnings on money you’ve got stashed abroad.
But there’s no need to panic (yet). There’s still some time to sort your finances out and speak to your financial advisor or tax consultant because this new piece of legislation has only come into effect this month, from the 1 October 2016, and is scheduled for a period of nine months ending on 30 June 2017.
To be clear, the SVDP is meant for individuals and companies who have not in the past disclosed tax and exchange control defaults in relation to offshore assets. So if you don’t have any money stashed abroad or if you’ve been a good citizen and declared all to SARS already you don’t need to worry your pretty little head about it. If not, you better get your ducks in a row. And if you think you’ll get away with it because your money is sitting pretty in some little known haven, remember what happened to all those rich people who kept sneaky little trusts in Panama. Yep, a whole lot of wily journalists got onto their case and burst the list of all who had money stashed there legally and illegally wide open. I’m sure some of those billionaires are still crying about it now as they drown their sorrows with a bottle of Dom Perignon.
But if the terms of the SVDP feel alien to you, I’ve interviewed Kyle Mandy, partner at PricewaterhouseCoopers (PwC) to explain the details. Yes, I’ve asked him all the silly questions, so that you don’t need to.
1. Do you have to declare all amounts of money under the VDP?
Kyle Mandy (KM): Yes. It is a requirement of the VDP that any disclosure must be full and complete in all material respects. Any failure to make a full and complete disclosure could see the denial of VDP relief or the subsequent withdrawal thereof.
2. How does one go about declaring it to SARS? Do you need to get your accountant to help, a financial advisor or could you do this yourself?
KM: There is no requirement that an advisor must assist a taxpayer. However, it would be advisable for a taxpayer to obtain assistance of an expert as it may not always be more beneficial for a taxpayer to make use of the SVDP and they may be better off applying for the normal VDP. Applications for both the exchange control and tax relief are made online through the SARS efiling system.
3. Why has the government decided to initiate this?
KM: There are two key reasons. Firstly, countries will commence exchanging financial account information in the second half of 2017. This will mean that many taxpayers who have undeclared assets and income in offshore locations will now be far more exposed to SARS and the Reserve Bank becoming aware of these and will face substantial potential penalties. Secondly, tax revenues are under pressure and South Africa is under pressure to reduce its fiscal deficit. Such a programme is seen as having the ability to provide tax revenues with a boost that it may not have had or may have received only in subsequent years following the diversion of significant amounts of resources to analyse financial account information and undertake audits of taxpayers in this regard. The SVDP is a far more administratively efficient way of enforcing the law.
4. Do you have any idea of how much South African money lies invested overseas?
KM: This is all speculation at this stage, but based on the results of such programmes to date in other countries and on anecdotal information, it amounts to many billions of Rands. Estimates of the revenues that could be collected as a result of the SVDP range up to R15 billion.
5. How will the government investigate those who don’t declare? Will there be much co-operation from financial and legal companies that offer investments to South Africans abroad? What about in unregulated areas?
KM: As noted above, other countries will be exchanging information with SARS in relation to financial accounts held by SA residents offshore. This will mean that the ability of taxpayers to get away with not disclosing offshore income will be substantially reduced and will continue to be reduced as more and more countries start exchanging information in coming years. While it will likely always be possible to hide assets and there are likely to always be those who are willing to assist others to achieve this, it will in future be far more difficult and costly to do so as the number of countries not exchanging financial account information shrinks. There is now far less tolerance for secrecy in the global community and we are seeing financial institutions no longer being prepared to assist people to evade their tax obligations.
So there you have it. All you’ve wanted to know (or not wanted to know) about the VDP. In case we missed it though, you can find out more about it from the South African Revenue Service (SARS) here.
Handy tip: If you need help with your taxes, why not fill out a form here on Justmoney and get the guys from TaxTim to help you.