SARS turns screws on rich tax cheats

- Simpiwe Piliso - Sunday Times

The taxman has unleashed his investigators on some of the country’s richest cheats, who could include banking executives, media barons, IT moguls, sports stars, celebrities and empowerment millionaires.

As part of a major crackdown, SARS has launched a review of the files of more than 600 wealthy individuals, including their family trusts.

Wealthy tax dodgers are short-changing the government’s coffers of billions of rands, leaving ordinary South Africans to carry the can.

SARS spokesman Adrian Lackay said: “SARS is owed billions by people who have the capacity to pay their tax, but choose not to.”

Wealthy individuals are those whose annual income is between R5-million and R40-million, or who have net assets exceeding R75-million.

The files under review include 273 associated entities — such as offshore accounts, private companies or close corporations — 103 trusts and 231 individuals.

Measures used by SARS to check assets against declared income include:


* Agreements with 35 tax havens to improve transparency and establish the effective exchange of information in tax matters; and

* A rigorous lifestyle questionnaire that asks about holidays, flights, restaurants, cellphone bills and shopping habits.


“Any taxpayer who receives a lifestyle questionnaire has ample reason to believe they are under serious investigation for possible tax evasion,” said a statement by Grant Thornton, the specialist tax and advisory services firm.

The questionnaire is sent to an individual as part of a preliminary investigation, which could lead to a search-and-seizure warrant being issued.

However, it is not just these taxpayers who will feel the heat. The taxman has uncovered that there are about 400000 unregistered taxpayers by simply cross-checking IRP5 information, which employers are now compelled to submit.

“These people are employees for which an employer issued an IRP5, but who were not on the SARS register. Therefore, they do not necessarily represent individuals who had not paid tax, but rather those who had failed to register as required,” Lackay said.

Grant Thornton points out in its report, The Tax Line, that the number of people being investigated by the tax authorities has increased significantly in recent years.

And while there are legal tax avoidance measures, independent tax consultant Nathan Endersby warned: “Some large companies and rich individuals are exploring forms of avoidance that they may think are legal, but SARS thinks are illegal.”

These include transferring money to tax havens that facilitate tax avoidance schemes.

Tax havens with which SARS has entered into agreements include the Seychelles, Mauritius, the Bahamas, Bermuda, the Isle of Man, the British Virgin Islands and Liberia.

Investigators said that although a lot of the information had been gleaned from lifestyle surveys , other information to catch tax cheats was based on public information on salaries, bonuses, share options, and the sale and purchase of shares by directors of listed companies.

Notices of company takeovers, new appointments or the retirement of top management officials also provided information.

Lackay said data accessed from the Masters Office, the Deeds Office and the Departments of Home Affairs and Transport were also used.

In addition, records of the sale and purchase of assets such as private jets, wine farms and racehorses also came in handy.

One such example is billionaire entrepreneur Dave King, who is fighting a marathon R2.3-billion claim against SARS.

The claim was sparked by a senior SARS investigator who noticed an Irma Stern painting in King’s mansion in Hyde Park, Johannesburg.

King, who stated that he earned R80000 a year in his tax returns, had snapped up the painting for a record R1.76-million at an auction.

Investigators this week said a lot of the information had been drawn up from lifestyle surveys carried out by Sars, while other information was based on public information on salaries, bonuses, share options and the sale and purchase of shares by directors of listed companies.

Notices of company takeovers, new appointments or the retirement of top management also provided information.

Sars has also been probing HNWI making use of resident and offshore trusts as conduts to redirect revenue in order to reduce their taxable income.

Sars has also collected and compiled information on complex structures used such as trusts, close corporations, syndicates and family companies.

Other information tools used for risk identification and detection purposes, said Lackay, include data accessed from other agencies and government departments, such as the Masters Office, the Deeds office, the Home Affairs Department, the Transport Department.

Also monitored by Sars are the sales and purchases of personal assets such as private jets, wine farms, racehorses and luxury homes and cars.

The public pursuit by tax officials of billionaire Dave King, embroiled in one of SA’s biggest tax claims, is one of the examples of this approach, targeting individuals who lead lavish lifestyles that seem to be at odds with their declared earnings.

A senior Sars investigator, reading a business magazine, noticed as an Irma Stern painting hanging in King’s Hyde Park mansion, north of Johannesburg.

King, who reportedly stated that he earned R80 000 a year in his tax returns, had snapped up the painting for record R1.76-million at an auction.

Realising that King had also applied to be deregistered as a taxpayer, investigator Charles Chipps, wrote to King asking him, among other questions, why it was that with only R80 000 a year “declared income”, he had bought the Irma Stern painting and wine farms in the Western Cape.

King, who is facing a tax claim of R2.3-billion (comprising of R913-million in personal tax and R1.4-billion for his trust, Ben Nevis) was arrested in May 2002 and faced 322 criminal charges.