THE more money you have, the more complicated your asset structures and tax returns.
Faced with ever-mounting tax implications, some people striking it rich yield to the temptation of tax avoidance - and sometimes manage to dodge the taxman.
But the SA Revenue Service (SARS) and its international counterparts are trying to close loopholes and trace hidden stashes of cash.
Technically, the super-rich file their tax returns just like everybody else. They also do not pay a higher income tax percentage than the 40% marginal tax rate of any employee who earns a little over R51000 a month.
Other tax rates, like the 15% for dividends tax for income earned from shares, are also the same as everyone else's.
But the problem for the rich is that the many assets and types of taxes involved can add up to stupendous sums.
SARS spokesman Adrian Lackay said: "SARS is not in a position to make a public statement on individuals who have or may still appear on the Rich List as all taxpayers are legally entitled to taxpayer confidentiality.
"In general terms, wealthy individuals normally have multiple sources of income and therefore a more complex tax status than ordinary salaried individuals. Generally, individuals in the taxpayer segment in question are provisional taxpayers."
There are legal ways to reduce tax burdens, such as trusts, but the use of trusts has often contravened the law. Now SARS is trying to stop their exploitation.
Finance Minister Pravin Gordhan announced a compliance plan of action in April to tackle segments of the tax base with low compliance levels. Seven problem segments were identified. Wealthy "South Africans and their associated trusts" topped the list.
SARS promised to provide opportunities for voluntary disclosure and pre-filing meetings for non-compliant individuals to come clean, with severe penalties for failing to do so.
But no threats will be taken seriously if dodgers do not believe they will be found out, so SARS has outlined several ways it intends to shine a light deeper into the affairs of the super-wealthy.
In its compliance programme document, SARS said that it had about 2300 wealthy individuals on a register of taxpayers contributing an average of R1.7-million each to the state's coffers every year.
"Our preliminary sampling exercise has shown that under-declaration of income is an area of concern, where an individual's income is not consistent with their asset base," the document said.
"To date, 467 potential wealthy individuals have been identified where there are discrepancies between their asset base and declared income, and they can expect much closer scrutiny from SARS.
"Wealthy individuals are also generally linked to a number of trusts and companies, some of which are used as vehicles to channel and hide their assets and income.
"Most of the wealthy South Africans we have reviewed are linked to more than 10 associated companies on average and 87% of these associated companies and 59% of trusts have outstanding returns."
Altogether 67% of audits of trusts show "serious under-reporting".
Among the problems listed by SARS are artificial losses and deductions, salary restructuring, assets and income diverted through associated entities and incorrect declaration of revenue profit as capital in nature.
Among initiatives listed in the compliance programme, SARS intends to use information from other jurisdictions around the world, particularly to root out offshore accounts in tax havens. These will be given priority attention using international cooperation agreements.
Use of other third-party information will also come into play, with SARS improving collaboration with the master's office to check up on the administration of trusts and compile more complete information on trustees and beneficiaries.
The receiver also intends to trace flows of funds around the world and to broaden audit and investigations, including the much-publicised lifestyle and related entities questionnaire.
To provide a credible threat of detection of non-compliance, SARS said it needed information from financial institutions, credit bureaus and data from sales of residential and holiday homes, aircraft, vehicles and boats to be scrutinised to catch out those who may not even be registered for tax but who clearly have money to throw around.
SARS has said it will deal harshly with individuals who decide not to comply.
* This article was first published in Sunday Times: Business Times
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