For many decades South Africans have been subject to exchange controls. The present measures were introduced in 1961, after a huge outflow of capital in the wake of the Sharpeville massacre, the previous year. They were reinforced in 1985 when credit sanctions were imposed on SA and have continued in some shape or form ever since.
However, they have been only partially successful and an estimated R30bn-R80bn worth of assets has been illegally placed or retained abroad by SA residents.
People with surplus assets, who feared the effect of political events on their financial security, argued they were entitled to dispose of their funds as they thought best. And people who would not otherwise have broken the law were prepared to contravene exchange-control regulations when they could find the opportunity to do so. Some even saw it as a matter of economic survival.
As a result, exchange controls generated a range of activities designed to circumvent or undermine them. On occasion, as in the case of round tripping, their activities generated profits for transactors. This opportunity arose in the days of a two-tier currency, when funds were brought into the country through the financial rand and sent out through the commercial rand.
One of the most common ways to get money abroad was over-invoicing. People used a legitimate import transaction to get money into their personal accounts in other countries.
Operating through their own businesses, or with the assistance of others with businesses, they sent money out to pay for imported goods. On each occasion, more was paid for the imports than the goods actually cost, and the surplus funds were then deposited into a personal bank account by the vendor who took a cut of the proceeds.
Other devices were also employed, including the old-fashioned practice of smuggling gold coins abroad in items of clothing and footwear.
A sea change took place in the tax environment in January 2001. "For years of assessment starting on or after that date, the SA tax system moved from a source basis of taxation to a residence or worldwide system of taxation," says Werksmans' Ernie Lai King. "South Africans who had transferred funds offshore now had to declare, for tax purposes, their non-South African sourced income. They suspected that, if they declared their offshore income, the SA Revenue Service would pass the information on to the SA Reserve Bank, which would then cause the money to be repatriated. The alternative was to lie in their tax returns on an annual basis.
"The latter was anathema to generally law-abiding persons," says Lai King. Certain organisations, including the SA Chamber of Business, started engaging with government on the possibility of introducing a tax and exchange control amnesty.
These events were taking place in the tax arena, but other developments were putting a new spin on the situation.
In the 1980s, a combination of high political risk and a large inflation differential between SA and its trading partners put roller skates under the rand. And despite the fall of the apartheid regime and improved financial and economic policies under the ANC government, the legacy of past uncertainty clung to the currency.
For many years, investors believed the rand could only decline in value, slowly or quickly; and that the best time to get money out the country was yesterday.
But, over time, good fiscal and monetary policies patiently applied in challenging circumstances have cut the inflation differential between SA and its trading partners. Despite the inflationary effect of bouts of currency depreciation, inflationary expectations have fallen dramatically.
The political risk has also fallen dramatically. The evolution of the new SA into a politically stable and potentially dynamic economy has created a different perspective on the rand and a new mind-set among investors. So the local currency is no longer regarded as a one-way bet for speculators.
The second development was the terror attacks in the US in September 2001, which has changed the dynamics of the international underground economy. The US response to the attack has unleashed unprecedented international law enforcement initiatives against the movement of illicit funds. The chances of illegal assets being uncovered abroad are now far greater than they ever were in the past.
This confluence of events has made it more attractive for erring South Africans to return to the forgiving fold, and less attractive for them to remain out in the legislative cold.
Finance minister Trevor Manuel took the opportunity to draw illegal assets back from abroad with the offer of a foreign-exchange and tax amnesty, which will give people a chance to rethink past decisions and come clean about illegal offshore assets.
Taxpayers will have a window - between June 1 and November 30 - in which to apply for relief.
The success of the amnesty will give Manuel a chunk of the assets disclosed in the form of the levies imposed: 10% of assets not repatriated and 5% of assets that are repatriated.
And it will broaden the tax base, giving him tax on the future revenue generated by those assets as well as the 2% domestic tax levy on funds previously undeclared for tax purposes.
Simultaneously, a change in the exchange-control regulations will allow SA emigrants to take out their blocked rands for the price of the 10%.
The changes to legislation and regulation will clear away some of the baggage of the past and lay the foundations for a healthier relationship between many erring South Africans and the financial authorities.
