The South African Revenue Service (SARS) is on a wealth crackdown and plans to use new methods of tracking funds to discourage and mitigate financial crime.

Over the past few months, the taxman has been targeting ‘unexplained wealth’ in South Africa and has been sending letters to well-off taxpayers under the new High Wealth Individual Unit and devising new initiatives.

In addition to the HWI unit, SARS plans to pilot a new initiative that can go beyond a traditional audit to find the source of a transaction and examine its lawfulness.

The HWI unit was established in late 2021 with the aim of looking into the finances of wealthy South Africans. Under its director Natasha Singh, the HWI unit will detect taxpayers who do not comply with tax regulations and/or are individuals with gross assets worth R75 million.

As of the start of 2022, SARS’ HWI unit selected 1,500 wealthy individuals and their related entities to be investigated; however, it says it now wants to extend its reach to include more individuals and families.

SARS has subsequently proposed that all provisional taxpayers with assets above R50 million be required to declare specific assets and liabilities at market values in their 2023 returns. The tax authority has also previously stated that it will target rich taxpayers with assets abroad who do not comply with the law.

On top of the new HWI unit, SARS is looking abroad to the UK for methods of targeting wealth domestically.

It is now piloting a new initiative to test if it can use existing legislation to target unexplained wealth or if it should adopt an international approach focusing on a standalone Unexplained Wealth Order (UWO).

A UWO in foreign jurisdictions such as Australia and the UK can be used to look more deeply at the wealth of the following people:

  • Politically Exposed Persons – these include individuals who hold “prominent public functions” like ministers, members of parliament, and ambassadors, as well as their families, well-known close friends, and other connections.
  • Someone suspected of being involved in a serious crime – these individuals are either linked to or under investigation for a significant crime. It takes “reasonable grounds for suspicion” before they can be given an order.

Under such an order, a court could confiscate unexplained wealth on the basis that the wealth of a person or entity is disproportionate to the lawful income derived or declared by the person or entity and that the defendant is unable to justify or explain how the wealth was lawfully acquired, said SARS.

SARS said its departments would be looking into assets suspected to have been acquired through:

  • Corruption;
  • Fraud;
  • Tax evasion; and
  • Money laundering.

The government has established a committee and task team to do research, benchmark and make recommendations on the way forward for the taxman.

This follows calls from the SARS Commissioner, Edward Kieswetter, for new tools to pressure non-compliant taxpayers. Kieswetter has noted that the current tax system is limited in its ability to identify instances of unexplained wealth as it cannot conduct a ‘fishing expedition’ to dig deeper.

The provision, in current existing asset recovery legislation, requires that the state prove a defendant’s legitimate sources of income are not sufficient to justify assets that the defendant owns.

He added that a revenue service that relies heavily on data could use algorithms to investigate into:

  • Property;
  • Vehicles, and;
  • Instances of beneficial ownership.

Read: New WhatsApp change could lead to legal trouble for group admins in South Africa