Exchange Control shock

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SA Treasury in “silent but violent” move – just as investment strategist Magnus Heystek warned.

By Magnus Heystek

Exchange controls are back!

In a sudden and almost totally unexpected move, the Treasury last week — just before the long weekend and without any consultation – introduced a new regime for South Africans either emigrating financially or wanting to use the R10m annual investment allowance.

In one fell swoop, described by some tax consultants as “silent but violent”, Treasury now deems financial emigration and the application for the annual R10m allowance to be the same thing, calling it an International Approved Transfer (IAT) with the same, complicated and intrusive process to be followed before permission will be given.

Some of these requirements are now so extreme and impractical that many taxpayers will walk away and use other ways (legal and illegal) to build up some offshore capital.

For instance: SARS now requires proof of the taxpayer’s WORLDWIDE assets and, at COST, a new and challenging requirement to fulfil. Moreover, most investors with some offshore portfolio — either shares, endowments or properties — will likely have built this up over decades, so the chances of them having all the documentation plus sources of capital is virtually non-existent.

Some tax practitioners had called Treasury’s move the end of the R10m annual investment allowance. In contrast, others say it is the end of the financial freedoms South African taxpayers had gradually experienced since 1997 when the first steps were taken to loosen Exchange Control’s screws.

The Apartheid Government introduced restrictions on citizens being able to move their money to stop capital flight after Sharpeville in 1961.

Now forex controls are back in their complete, brutal and invasive form. These new regulations were introduced to stem the massive outflow of capital from South Africa, significantly since the maximum allowance was increased to R10m per person per year.

It has been clear for some time now that the flow of money out of SA has been much more significant than was expected, especially since 2015, when wealthy families could take out R11m per year for each registered taxpayer. Since then, it was not uncommon for well-heeled families to take out the maximum allowed each year.

Even SA’s large asset managers were starting to feel the pain, as most have experienced heavy and steady outflows, according to the public accounts of some (Coronation) and deductive analysis of the other prominent institutional players.

During my keynote at the most recent Biznews investment conference in the Drakensberg (BNC#5 in early March), I warned — as I have been for several years now — that a change in the ANC govt approach to the free flow of capital can change overnight—which it currently has. You can watch the keynote below:

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