The South African Revenue Service (SARS) is investigating luxury-goods purchases as a way to clamp down on individuals it suspects are deliberately hiding sources of income from authorities.
“We’re starting to look at who is buying luxury apparel and we’re trying to find out where do these people get their money,” Chief Revenue Officer Johnstone Makhubu said on Monday at a conference hosted by the South African Institute of Taxation.
“The project is a step towards giving tax authorities a broader view of people that ‘aren’t in our purview that we’d like to bring into the net,” he said.
Over the past few months, the taxman has been targeting ‘unexplained wealth’ in South Africa and has been issuing out letters to well-off taxpayers under the new High Wealth Individual Unit and devising new initiatives.
In addition to the HWI, 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 2021 with the aim of looking into the finances of wealthy South Africans. The HWI unit will find taxpayers who do not comply with tax regulations and/or are individuals with gross assets worth R75 million.
As 2022 began, 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 is increasingly moving towards marrying its traditional audit and accounting competencies with data engineering and analytics to improve compliance and ensure that initiatives like lifestyle audits become “hardwired” into its operations, said Makhubu.
Some data led to investigations into people suspected of syphoning money off faith-based organisations to fund their lifestyles, Makhubu added.
The agency also set up data exchanges that help it probe financial emigration, a process used by South Africans based abroad to cease their local tax residency and has identified about 300 000 transactions exposed through the Pandora Papers for possible investigation, he said.
Source: Business Tech, Fin 24, image from Twitter: Bloomberg