“The purpose of agreements of this nature is to fight tax evasion on an international basis so that countries can exchange information on an automatic basis,” Kosie Louw, chief officer at the South African Revenue Service (SARS) told CNBC Africa.
SARS is the country’s revenue service, responsible for tax collection and ensuring tax compliance by both individuals and organisations.
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“If the agreement is signed, then South Africa will pass on information that South African financial institutions have in respect to US citizens. Certain information in the accounts of those citizens, such as [identity] and financial information, [will also be exchanged],” Louw added.
The agreement will be mutual as the US will also be obliged to supply information in respect to South African citizens.
According to SARS, an agreement of this nature will help ease compliance costs of South African financial institutions in respect to the US’s Foreign Account Tax Compliance Act (FATCA).
The FATCA, which was enacted in 2010 by the US, seeks to obtain account information of its citizens from foreign financial institutions.
The proposed agreement will see an increase in the revenue being collected currently by SARS as tax evasion will be censored.
In 2013, Finance Minister, Pravin Gordhan instituted a review of the tax regime as to ensure corporations adhere to tax instruments. The finance ministry noted that tax evasion was affecting delivery, fiscal sustainability, inclusive growth, employment and development.
The two respective countries are expected to sign the inter-governmental foreign tax compliance act in the next two months.
BY: TRUST MATSILELE