Exchange Control Amnesty & Draft Taxation Laws Amendment Bill: briefing

Meeting report

Treasury presentation
Mr Martin Grote (National Treasury) delivered the presentation (see document).

Discussion
Dr Woods (IFP) enquired about the amount of disclosure that is required by people applying for the amnesty. How much disclosure is going to be forthcoming? Could this not lead to a position where a finacial advisor/facilitator could be implicated? Are they not vulnerable to criminal proceedings?

Prof Engel (National Treasury) explained that they expect most of the money to be in the form of bank accounts or shares. All they want to do is make sure that people provide a kind of statement proving ownership of the asset to prevent any kind of money laundering. They also sign an affidavit declaring that this asset is not part of a criminal activity. If subsequently it becomes clear that this was part of a criminal activity then you can go back on a criminal point.

Dr Woods asked if there would not be some advantage in taking the disclosure a bit further.

Mr Grote replied that the gathering of that data was certainly a very attractive prospect. The real issue however is building the tax base, as this information will help with future collection of taxes. They are also very aware of starting the perception of a witch-hunt and do not want people to be scared to come forward because of all the requirements of the disclosure. The biggest concern for government is that the government does not undermine its agreements with its foreign partners in terms of the Financial Intelligence Centre Act. They do not expect those individuals who were involved in criminal activities to come forward. The Minister was clear in his Budget Speech when he said amnesty would only be given for people who had transgressed the Income Tax Act and exchange control regulations.

Mr Malan added that the funds they are seeking are legally derived funds.

The Chair asked what happens to the information when the amnesty unit is finished with it. Where does it get archived?

Prof Engel replied that the amnesty unit will take the information and collate how many assets there are. Then the information will be passed on to the Reserve Bank. From there, it will be passed on to SARS so that everyone can check what is there.

The Chair commented that it means that the Reserve Bank or SARS will have the information and that the FIC (Financial Intelligence Centre) could then request that information at any stage.

Mr Grote clarified that that information will be in a sanitized form as it was his understanding that there would be no names attached.

Prof Engel agreed that the legislation is a bit unclear on this point. He explained that the amnesty unit would give all the information to the Minister. The purpose of this is to get an aggregate compilation that the Minister will then report.

The Chair stated that it is too vague. Where that information finally resides is very important.

Mr Grote gave the example of Italy which burned all their records. That is probably not a satisfactory option, as that would not satisfy individuals that no copies have been made. They will have to look at this issue closer.

Mr Grove (Assistant General Manager, Exchange Control Department, SARB) proposed that the information be released after the unit is finished with it to the Exchange Control Department and the Commissioner of SARS in order for them to update their records. They do not intend to use it for any other purpose.

Ms Taljaard (DA) expressed her concern that the amnesty unit "was not thought through clearly" and the interrelationship between the three agencies regarding the access of information. Her concern stemmed from the fact that most of the powers and functions of the unit has been left to ministerial discretion and regulations. She clarified that she is not attacking the legislation and that there is a lot of rationale in there. She questioned the unit and its relationship with the three agencies (SARS, SARB and the Treasury). She was not convinced that the amnesty unit was administratively the wise way to go.

Mr Malan (National Treasury) replied that the process of the unit was clearly set out. In order for flexibility they deemed it appropriate that the unit itself makes the decision as to how to determine its own procedures. This is a legally accepted mode of operation. They obviously endeavour to appoint fit and proper people to the unit.

Mr Grote highlighted the conceptual basis of the unit. He saw the unit as a facilitator for taking the information and "conveying" the application process. He accepted that they have not yet adequately dealt with what to do with the information.

Prof Engel emphasized that it is important to take notice of what information is going to be disclosed. It is simply what is the asset, what is it worth and show proof of ownership. They are trying to ask as little as possible. They are not going to be asked how they got their assets.

The Chair then asked how the tax authorities are going to know in the future that the money somebody declares in their tax return reflects the money that they received amnesty for.

Mr Kingon (General Manager, Legal and Policy, SARS) responded that if they do not have access to the information declared to the unit it would be problematic. To do reconciliation going forward does cause a few concerns.

Ms Taljaard stated that the obvious conceptual question that arises for her is the choice of an amnesty unit to create a communication link between the two agencies. Were any other options considered?

Mr Grove replied that they did look at different models. This model was chosen in order for the agencies to be able to share the information afterwards. Therefore the decision was made that it must be an independent unit with the Chairperson being appointed from outside the agencies.

The Chair expressed her concern on what information the agencies still need to have after the amnesty is granted. There are confidentiality concerns. The general public needs to be protected. The information should only be available to those two institutions.

Mr Tarr (ANC) wondered whether it would not become clear from the amnesty applications who the financial advisors/facilitators were. What would happen then?

Mr Kingon admitted that when future tax returns are filed it is possible that questions could be asked about where income has come from. When discrepancies are picked up they will be investigated.

The Chair emphasized that that is exactly why SARS had to have access to the information.

Mr Moloto (ANC) asked if this bill could be challenged on the grounds of discrimination (as reported in some newspapers). The discrimination arises from the fact that some people receive amnesty and others, who already received a notice that they are under investigation, cannot.

Mr Grote replied that this was one of the hottest topics. What we have to remember about an amnesty is that it is granted if there was a voluntary disclosure.

The Chair remarked that it seems unfair.

Prof Engel replied that amnesties are unfair.

Dr Woods commented that the previous tax amnesty had a similar discrimination so one should be consistent.

Dr Rabie (DA) asked whether tax amnesties are common.

Mr Grote replied that over 85 countries have experimented with it. The IMF is against it. The consensus is, if you can avoid it, rather do so.

The Chair added that in South Africa one has to take amnesty precedents into account. She referred to the Truth and Reconciliation Commission as an example of this.

Ms Taljaard proposed that it would be in their interest to get a legal opinion on the composition of the unit, as it will consist of SARS and SARB staff. This should make sure that there are no legal challenges that can be made against the unit itself.

The Chair remarked that she could see Ms Taljaard's point but emphasized that this unit will be independent of both SARS and the SARB.

Ms Taljaard commented on the fact that the bill states that the levies (5% and 10%) must be paid from your foreign assets. She stated that some people would have to sell their assets to pay the levy, as they might not have any other assets outside the country.

The Chair commented that these assets were illegally obtained. These individuals broke laws to attain those assets.

Ms Ramos (Director General, National Treasury) remarked that they are quite generous in granting this amnesty in the first place. If that individual had to go and raise a bond to pay the levy, then so be it. They are already not being asked too many questions about how the money got there.

The Chair expressed her concern that this might lead to a debt trap when people are raising bonds to pay their levies.

Ms Ramos commented that they should use the words 'debt trap' advisably. She explained that the initial sense she has is that these individuals who have assets offshore are not impoverished people. If somebody owns a property over the R750.000 limit then raising the money to pay the levy is not a debt trap.

Dr Woods commented that in the Minister's Budget speech amongst his tax proposals he mentioned accelerated depreciation allowances for investment in certain urban areas. He did not find that in this bill. Will it be accommodated at a future stage?

Mr Grote replied that it would be included in the second tax amendment bill, which is scheduled for September. Those are issues that need more work.

The Chair asked if there are guidelines for what "extreme circumstances" mentioned in slide 21 of the presentation would constitute.

Prof Engel replied that these provisions for withdrawal are very rare, therefore the use of "extreme circumstances". The only time there is going to be a withdrawal is when they later found out the individual's money came from drug money or money laundering or that the individual was under investigation already. These are spelt out in the regulations.

There were no further questions and the meeting was adjourned to give the Treasury, SARS and SARB time to revisit some of the details of the draft bill.