WHY EXCHANGE CONTROL IS ABOUT TO GO

In an April 2003 article I queried why the Amnesty Bill had just been introduced when Exchange Control was going to be dropped anyway and concluded that whatever the reason, “it clears up what’s due to Caesar”. In my opinion the Amnesty Act was no less and no more than a carefully designed bait to hook taxpayers earning undeclared foreign income. Exchange Control has to be dropped to attract foreign investment. Outsiders will not invest in a country that doesn’t allow its own citizens to deal with their wealth as they wish. When Exchange Control is dropped the problem for the taxman, however, is that assets stashed offshore will never come to light. Thus cleverly the Amnesty was introduced suggesting on the face of it that it’s a good time to own up because one might want to bring money back and this is the only way it can be done. In fact the Amnesty is and was no more than a tax declaration!

 

The real motive for the Amnesty Act was evidenced in a number of subtle ways. Thus, for instance, while the first draft of the Amnesty Act specifically required full disclosure of how the scheme of exporting assets from South Africa had worked, this was dropped entirely from the second draft because it was of no consequence to the end required to be achieved, namely, information helpful to the taxman! Likewise in the first two drafts of the Act, persons entitled to apply for Amnesty did not include Executors of deceased Estates presumably on the basis that as the contravention had been committed by a deceased person it was no longer relevant. The final draft included Executors no doubt because the taxman wanted to cast an even wider net. Likewise to complete the information flow the secrecy provisions previously contained in both the Income Tax Act and the Reserve Bank Act were amended to allow for mutual disclosure between the two institutions.

Another indication that the Amnesty Act had little to do with owning up and everything to do with increasing the taxman’s share was the fact that then as now in terms of EC regulations dividends, interest or other accruals held by residents are required to be repatriated. However, in terms of the Amnesty Act no such provision was made. The Amnesty Act only provided that no criminal or other penalties would follow, i.e. foreign assets “regularised” under the Amnesty Act would be dealt with as if there was no Exchange Control and differently from assets otherwise authorised under the regulations!

For this reason I believe that the vast majority of applications were approved by the Amnesty Unit without any nitpicking. Even where material questions of ownership were concerned, i.e. share options invested in Trusts or whether donations had taken place, the “ownings ups” were accepted at their face value. Likewise the last minute exemption granted under Circular D405 to all assets held by residents who were previously immigrants together with foreign inheritances and foreign income accruing to residents but subject to disclosure to both the Receiver of Revenue and the Reserve Bank!

Finally, for the first time in many years there was hardly a mention of Exchange Control in the Budget of February 2005. The reason being that in February 2006 Mr Manuel is going to happily proclaim the complete dismantling of Exchange Control to thunderous applause. He cannot do it earlier because it would appear disingenuous insofar as the Amnesty process is concerned.

Beware, however, those that did not apply because just as the Amnesty was largely a tax fishing expedition so a continued failure to disclose offshore assets will create awkward problems for taxpayers in an ever shrinking world with the taxman world wide gaining access to more and more information.