Introduction One of the most significant and controversial aspects of South Africa’s fiscal agenda this year is the income tax and exchange control amnesty. The amnesty frees individuals from civil penalties and criminal liabilities for the illegal shifting of funds offshore in contravention of exchange control on or before 28 February 2002. It also releases taxpayers from all income taxes, interest and civil and criminal penalties stemming from the failure to disclose gross income or capital gains from foreign sources arising on or before 28 February 2002. South Africans are estimate to hold between R 20 bn-R 80 bn illegally offshore and this amnesty will certainly help broaden the tax base. Residence- based taxation The adoption of a residence-based system of taxation from 1 January 2001 means that South African residence are now taxed on their worldwide income. Taxpayers who do not disclosed the income earned by their offshore assets are guilty of tax evasion.
But by disclosing this foreign income South African residents, who hold foreign assets in contravention of the Exchange Control Regulations, would be incriminating themselves. Thus Finance Minister, Trevor Manual, promulgated an exchange control and tax amnesty in his 2003 Budget speech (2003: 24) to provide taxpayers with an opportunity to extricate themselves from this predicament and legalize their affairs. Persons who may apply for amnesty The Draft Exchange Control Amnesty and Amendment of Taxation Laws Bill (the Bill) does not grant a blanket amnesty to all taxpayers with undisclosed offshore funds. Section 3 (1) of the Bill (2003: 9) limits the eligible applicants to natural persons who are resident in the Republic. Thus, companies, close corporations and offshore trusts are unable to apply for amnesty.
The Term Paper on Tax Planing – nature and forms of Business, Sec 10A of income Tax Act of 1961
Tax Planning is an exercise undertaken to minimize tax liability through the best use of all available allowances, deductions, exclusions, exemptions, etc.. to reduce income and/or capital gains. Tax planning can be defined as an arrangement of one’s financial and business affairs by taking legitimately in full benefit of all deductions, exemptions. allowances and rebates so that tax ...
Period for amnesty applications There is a limited amount of time given to taxpayers to apply for amnesty. Section 4 of the Bill states that applicants ‘… must submit an application by way a sworn affidavit or solemn declaration to the amnesty unit during the period commencing 1 May 2003 and ending 30 October 2003… .’ Tax advisers have voiced concerned that the period of the amnesty may be too short as pointed out by Thomas (2003: 84) in his article ‘Wait for more details’. Circumstances where amnesty may not be granted There are certain circumstances under which amnesty may not be granted. The Bill in s 9 states that amnesty will be denied where: .
applications are not submitted within the deadline; . an investigation into the applicant’s affairs is already underway; or. foreign assets have been derived from unlawful activities. In these circumstances, the amnesty unit is required to provide the applicant with notice of denial, setting out the reasons thereof. Amnesty levy and tax relief There will however be a financial sanction for coming clean.
Section 11 (1) (a) of the Bill states that a 5% penalty (based on the market value of offshore assets) will be imposed on foreign assets repatriated to South Africa. Section 11 (1) (b) of the Bill levies a 10% penalty on disclosed foreign assets, which the taxpayer chooses to keep offshore. These penalties are not onerous and should not hinder the flow of these funds back to South Africa. As Cresswell (2003) in his article ‘Owning up to offshore funds skips tax run-out’ argues a 10% penalty is a fair concession for many years of tax free growth earned.
Those that choose not to take up the amnesty and continue to hold undisclosed funds offshore in contravention of exchange control and tax legislation will face heavy penalties if found guilty. Thomas (2003: 84) in his article ‘Wait for more details’s tates that ‘penalties include fines of up to 200% of the tax evaded or two years’ imprisonment’. Thus, many experts are advising taxpayers to take this opportunity to become legal. Secrecy and confidentiality In Thomas’s article ‘Wait for more details’ (2003: 84), he quotes KPMG’s executive director Dance Folscher as saying that ‘a fear for many and possibly the biggest deterrent, will be that of being permanently “orange-tagged” by SARS.’ The Bill does provide taxpayers with some reassurance. Section 19 (2) of the Bill requires the amnesty unit to act as an independent body and s 21 (3) guarantees that the secrecy provisions of s 4 of the Income Tax Act 58 of 1962 will apply to all members of the amnesty unit.
The Essay on Flat Tax Bill System Income Rate
106 th Congress 1 st Session H. R. 5 IN THE HOUSE OF REPRESENTATIVES OCTOBER 19 TH, 1999 Introduced the following bill in which was referred to the Committee on A BILL To tax income once and only once at a single rate. 1. Be it enacted by the Senate and the House of Representatives of the 2. United States of America in Congress assembled. 3. SECTION 1. THE TITLE 4. This Act may be cited as the " ...
Conclusion Despite the reservations, this amnesty is beneficial to both taxpayers and the fiscus. It provides taxpayers, who illegally hold funds offshore, a relatively cost-effective method of legal ising their affairs and provides the fiscus with an opportunity to increase revenue by broadening the tax base. This will finally bring South Africa into line with international tax practice. Bibliography Legislation. Income Tax Act 58 of 1962. Draft Exchange Control Amnesty and Amendment of taxation Laws Bill Articles.
Cresswell V ‘Owing up to offshore funds skips tax run-out’ Business Day 5 March 2003. Thomas S ‘Waiting for more details’ Financial Mail 7 march 2003.
