Efforts to increase South Africa’s financial transparency and accountability to get off the dreaded Financial Action Task Force (FATF) grey list have been given a boost with a proposed change to tax legislation.

The Tax Administration Laws Amendment Bill will, if passed, provide for the South African Revenue Service (Sars) to share confidential taxpayer data with three more key government institutions.

This “collaborative information-sharing effort” is, according to Phillip Joubert, manager of the Centre of Tax Excellence at the South African Institute of Professional Accountants, aimed at supporting:

  • The Master of the High Court;
  • The Companies and Intellectual Properties Commission (CIPC); and
  • The Directorate for Non-Profit Organisations.

Regaining trust

The primary objective appears to be the alignment and cross-referencing of information related to beneficial ownership, a concept that has now also found its way into the Tax Administration Act (TAA).

“Addressing the lack of clarity on beneficial ownership and the concept of piercing the corporate veil represents a significant area for improvement as highlighted in the FATF report on South Africa,” says Joubert.

Sars has been unwavering in guarding the confidentiality of taxpayer data . Section 70 of the TAA details with whom Sars may share taxpayer data and in which circumstances.

It is this section that has now been amended to add the three additional government entities to the list.

“Transparency and accountability in South Africa’s tax and financial system are essential for fostering trust, attracting investment, combating corruption, and ensuring fair and equitable economic growth,” says Joubert.

These elements contribute not only to the country’s domestic stability but also to its standing in the global economic community, he adds.

More eyes watching

Joubert says the revision to the TAA, alongside other amendments to the Companies Act and the Trust Property Control Act, will exert a positive influence on the FATF greylisting.

Section 70 lists certain entities that Sars may provide information to – but it also provides that such disclosure may be made only to the extent that it is necessary, relevant and proportionate to exercise a legislative function or duty.

The expansion of the list is aimed at identifying the beneficial owners of companies, trusts and non-profit organisations to enable accurate determination of tax liabilities and assist investigations into suspicions of money laundering and illicit activities.

“It is crucial to note that any information shared by Sars is limited to that which is within their possession and is intended solely to assist other departments in the fulfilment of their duties,” Joubert adds.

Our deficiencies

FATF, the global financial crime watchdog, greylisted South Africa for not fully complying with international standards around the prevention of money laundering, terrorist financing and proliferation financing.

It found several deficiencies in South Africa’s fight against organised crime and illegal financial flows through money laundering and terrorism financing, landing us on the grey list in February this year.

South Africa finds itself in the company of the likes of the Democratic Republic of Congo, Nigeria, South Sudan, Syria and Yemen.

Finance Minister Enoch Godongwana said in his medium-term budget policy statement that a large number of government departments and agencies – including Sars, the National Prosecuting Authority and the Hawks – have been working hard to address the identified deficiencies.

FATF noted in October that this work has been showing “positive results”.

During the plenary session, it was noted that 15 of the 20 technical deficiencies in SA’s legal framework have been addressed, as well as 17 of the 22 effectiveness action items.

Godongwana acknowledged that there is a “significant” amount of work that must still be done, particularly with regard to the investigation and prosecution of complex money laundering cases and terror financing.

Goverment expects to address all the deficiencies identified by FATF by early 2025

Source: moneyweb.co.za