"We will catch you out," Pravin Gordhan, the head of the South African Revenue Service (SARS), has warned people with "grey money" offshore. His words this week were aimed at those who don't take advantage of Finance Minister Trevor Manuel's offer to South African residents to legalise their "grey money" held in foreign countries - with an estimated total of up to R300 billion.
And if SARS gets you for not declaring everything during the amnesty period, you will face tough penalties in fines and even a prison sentence.
"Grey money" is any money that you have taken offshore illegally or earned offshore and left there without declaring it in your tax return.
In an interview this week, Gordhan spelled out the various new weapons he has at his disposal to flush out those people who do not come clean.
And improved tax collection locally has shown both SARS's efficiency and its commitment to get you if you are a tax offender.
The new weapons include:
- The Financial Intelligence Centre Act, which has established an obligation on financial institutions to report all movements of money off and on-shore. The main aim of this Act is to track money launderers and other international criminals, but a by-product of it is that it will track "grey money".
- An improved exchange of information between different countries, particularly those with which South Africa has double taxation agreements. Double taxation agreements ensure that you do not pay tax on the same income in two or more countries. But Gordhan points out that the agreements have also resulted in an exchange of information between tax authorities "which SARS intends to make use of".
- The fact that tax havens are no longer as "secret" as they have been in the past, particularly because of international pressure and concerns about terrorism and tax evasion.
- A policy of publicly naming and shaming tax offenders, whether they are evading the amnesty or tax laws.
- The required inclusion of all income you earn worldwide in the Income Tax Act through the introduction of residence-based taxation since 2001.
- The fact that the Reserve Bank and SARS are planning to have an on-going exchange of information about capital flows, including payments for imports and exports. The information collected by the Reserve Bank will be compared with tax returns.
Taxpayers have been given a six- month period from May 1 to October 31 this year to come clean.
"Grey money" declared in the amnesty period will be subject to penalties, but these will only be applied to amounts greater than the R750 000 you are currently legally allowed to hold offshore. Nevertheless all "grey money" held offshore, whether greater or less than R750 000, must be fully declared.
If you have already legally used your R750 000 foreign investment allowance, you cannot claim it a second time against "grey money".
The penalties are:
- A five percent once-off levy on "grey money" that you bring back into the country during the amnesty period; or
- A 10 percent once-off levy on any "grey money" you want to leave legally offshore.
The government's view is that the levy must be paid out of the "grey money" and not from local funds.
Gordhan says the intention of these requirements is to encourage you to bring money back into the country.
If you are already being investigated for having illegal offshore money, you cannot take advantage of the amnesty.
Gordhan says the practical details of the amnesty are still being finalised and will be published soon.
The details are currently being thrashed out by a joint SARS and Reserve Bank committee.
In his Budget speech Manuel said:
- An application for amnesty must include an individual income tax return for the year of assessment ending on February 28, 2003 that fully discloses all foreign income. In other words, you will be liable for income and capital gains tax from the start of the 2002/03 tax year; and
- The application for exchange control and/or income tax amnesty must contain a full disclosure of offshore assets and liabilities.
Many South Africans started "smuggling" money out of the country when the previous government was in power, fearing the political situation here would sour.
People have also sent money out the country illegally because they wanted to diversify their investments (especially before exchange controls were relaxed) and to avoid paying tax in South Africa, by investing in tax havens.
Make sure that you don't get caught out
Worried about being caught leg before wicket if you deal directly with the tax authorities over your "grey money"? Personal Finance has the solution.
Send us your questions about "grey money" and we will see to it that the South African Revenue Service (SARS) answers them. Pravin Gordhan, the head of the SARS, has given Personal Finance an undertaking that your questions will be answered.
Personal Finance will publish the questions and answers on a regular basis. Send your questions to: Questions of Grey Money, Personal Finance, PO Box 56, Cape Town 8000 or email: [email protected]