Offshore income disclosure could rake in billions - tax expert

2016-10-26 13:11 - Liesl Peyper

Cape Town – The fiscus could benefit handsomely from individuals and companies that voluntarily disclose unauthorised foreign assets and income, provided government allows for more generous charges than the mooted 40%, said Ernie Lai King, head of tax for Asia & South Africa at the law firm Hogan Lovells. 

Lai King spoke to Fin24 ahead of Wednesday’s medium-term budget, to be delivered at 14:00 by Finance Minister Pravin Gordhan. 

In the beginning of October 2016, National Treasury launched the Special Voluntary Disclosure Process, which allows taxpayers to declare their undisclosed offshore income and assets to legalise their financial affairs. 

“If National Treasury drops the 40% charge on these offshore income and assets to, say, 30%, it would be able to collect a more generous amount. We should be going for the low hanging fruit,” Lai King said. 

During the 2003 to 2004 tax amnesty process assets to the value of R65bn were disclosed, he said. 

At the time the tax amnesty covered income tax, donations tax and estate duty in respect of funds earned or transferred offshore. In addition, those who had evaded taxes that were not covered by the amnesty and who took the money or assets offshore could also apply for amnesty. 

“The amnesty process during this period increased our tax base and our gross national product figures,” Lai King said. “If National Treasury gets the voluntary disclosure process right with the current disclosure process, we will probably collect more than during the amnesty period. 

“But it depends on how friendly this disclosure process is going to be. I do hope we’ll hear some announcement that will be more encouraging.” 

Tax hikes 

Lai King is of the view that that there is an “outside chance” that Gordhan will announce an increase in marginal tax rates which will be implemented in April next year. “At the moment it’s 41%, but it may go up to 42% or even a little more.” 

There could also be a possible increase in capital gains tax, he said, although he didn’t think corporate tax would be affected. “If corporate taxes are raised, it will most likely be in the form of a dividend tax,” he said. 

Foreign direct investment

Lai King is concerned about the drop in foreign direct investment (FDI) into South Africa. He cited the most recent World Investment Report, which stated that FDI into Africa dropped by 7% in 2015, representing a $54bn decline. 

“And if you look at South Africa, we had the worst FDI of all African countries for years and it doesn’t look as if 2016 is going to be any better.” 

If government can turn the tide on corruption (Lai King admitted there has been some improvement) it will not only free up billions of rands but also make South Africa more attractive in terms of FDI, he said. 

“Basically Pravin (Gordhan) has to rejuvenate the economy through three pillars – good governance and government, improved skills and better infrastructure across the board. 

“And the latter two require good FDI – long-term investment, not bargain seekers on the short term,” he concluded. 

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