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How Sars is closing in on high net worth individuals

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A number of high net worth individuals have received “welcome” letters from SA Revenue Services (Sars), which suggests the tax agency is making good on its promise to scrutinise this elite club.

Jean du Toit of Tax Consulting SA reports that Sars is not disclosing exactly what criteria it is using to identify high net worth individuals, though the simplest methodology would be to identify those earning in excess of R1.5 million a year, which puts the number of individuals at 113,000.

But a more fruitful club for Sars will be those who qualify as dollar millionaires, making this a smaller community of about 38,000 individuals.

“A more accurate parameter is probably taxpayers with a gross income exceeding R7 million per annum, or with gross wealth exceeding R75 million. Historically, this is SARS’ classification of high net worth individuals,” says du Toit.

Though Sars has improved data exchange with overseas tax authorities allowing it to track down the assets of expatriate South Africans, some fund managers report that the truly wealthy in SA have spent decades spiriting their money offshore into difficult-to-trace structures.

Tax Consulting SA says the “welcome” letter from Sars directed at high net worth individuals (HNWI) is phrased in the spirit of cooperation. Unless you have something to hide, your experience with Sars may vastly improve, as each individual in this select group will be assigned a dedicated relationship manager to oversee their profile and who will serve as their direct point of contact. It seems this Unit will operate in a similar fashion to the Large Business Centre, almost like having a private banker for your tax affairs.

“Sars promises that the unit’s service offering will be informed by “global best practice”, to ensure it delivers on its mandate. This is encouraging, or unnerving, depending on who you ask. It serves to note that while the Unit aims to excel in its service delivery, it has been established primarily to enhance compliance among and increase collections from this segment of the tax base,” says du Toit.

How will the Unit go about its business?

The standard of “global best practice” is undefined and it would be interesting to know which revenue authority’s model SARS will look to replicate.

In the UK, the HNWI Unit also uses a single point of contact for every taxpayer, translating to a higher level of service and scrutiny. This division comprises specialist teams and has had relative success in improving collections.

The same unit of the Australian Tax Office uses a risk-based management approach where high net worth individuals are identified and scrutinised according to the risk they pose to the tax system.