In October last year the Tax Administration Act (TAA) became effective and it includes new provisions relating to penalties for administrative non-compliance, understatement and criminal offences with regards to tax obligations. In particular, in terms of administrative non-compliance and understatement, the TAA has sought to make the penalties clearer while at the same time proving more of an incentive for taxpayers to comply – and to do so on time.
Administrative non-compliance penalty
As Somaya Khaki, Tax Suite project director at the South African Institute of Chartered Accountants explains, “the administrative non-compliance penalty is for administrative faults such as not submitting your tax return on time or not paying your tax on time and is made up two types of penalties – a fixed amount penalty and percentage based penalty.”
For the fixed amount penalty, the fines are predetermined by the taxpayer’s taxable income for the previous year with the penalty amounts ranging from R250 p/m to R16 000 p/m. Be aware that these penalty amounts are charged per month or part thereof that the defaulting taxpayer fails to correct their non-compliance – which means that for every month that you continue to be non-compliant you will be fined that amount again.
The percentage based penalty relates to specific instances within the certain tax acts, such as the late payment of VAT or Employees’ Tax.
If you have been issued an administrative penalty it is possible in certain circumstances to have SARS remit the penalty but a remittance request must be made on the prescribed SARS form before the due date for the payment of the penalty.
Understatement Penalty
An understatement penalty is charged when a taxpayer submits an incorrect income statement or has omitted detail from their income statement, as Khaki points out, “the penalty for such an understatement is payable on top of the tax amount that is due.”
The new understatement penalty replaces the 200% additional tax which could previously be applied to those who understated their tax. This new penalty is also percentage based, but is determined by a table based on the taxpayers behaviour (i.e. Substantial understatement, reasonable care not taken in completing return, no reasonable grounds for tax position taken, gross negligence, or intentional tax evasion) and other criteria such as standard, obstructive or repeat cases, and whether or not the taxpayer voluntarily disclosed their fault before or after notice of audit. For example, if you are judged to not have taken reasonable care in completing your tax return but you voluntarily disclosed your error once you received a notice for an audit, your fine will be 25% of shortfall that arises due to the understatement. However, if you made the same error but you are a repeat offender, your fine will be 75% of shortfall that arises due to the understatement
Although this restructuring of these penalties is intended to make things clearer for the taxpayer and to rely less on the discretion of individual SARS employees, Khaki remarks that “there are still some grey areas with respect to the table of behaviours and relevant penalties. Guidance may be found in the SARS Short Guide to the TAA but it seems that in practice this process is still dependent on the individual SARS employee making this assessment and is therefore still a subjective decision due to the nature of the behaviours described.”
“On that note,” she adds, ‘it is important to remember that if you have been issued an understatement penalty, it is up to SARS to prove the facts for issuing of the penalty. Therefore you may request reasons from SARS justifying the basis of charging such a penalty.”
In all cases relating to tax, whether simply filling out your tax return or dealing with a substantial penalty, it is always best to be consulting a registered tax practitioner– and the best place to find one is at – Everything Tax At Your Fingertips.
