In his latest budget speech the minister clearly stated that Treasury is finding itself in a challenging period, with revenues lower than expected by R16,3 billion compared with estimates at the time of the 2012 budget.
From the above it is clear that Treasury will use every endeavour to increase the collection of taxes including administrative- and understatement penalties.
We as taxpayers have felt over the past years the effect of penalties being imposed on almost any non-compliance. For the fiscal year 2012 SARS has collected over R1 billion rand from imposing the abovementioned penalties.
What is this non-compliance penalties?
In a short guide to the Tax Administrative Act, 2011 (“TA Act”) SARS explains the administrative non-compliance penalties as follows.
Introduction and purpose
The principal goal of sanctions in the form of administrative penalties is based on a simple promise – the threat of punishment deters unwanted behavior (i.e. non-compliance and tax evasion).
For sanctions in the form of administrative penalties to be effective the following is fundamental:
- – Administrative penalties must be easily understood by taxpayers
- – Certainty of being penalized must exist in the mind of the taxpayer
- – A discretionary judgment in imposing penalties must only be required where non-compliance is based on negligence or intent.
The non-compliance levies consist of two types of penalties:
- – Fixed amount penalties
A fixed amount penalty will be imposed when a taxpayer does not comply with an obligation that is legally required from a taxpayer.
The amount of the penalty will increase automatically for each month that the taxpayer fails to remedy the non-compliance.
Table of fixed amount penalties.
| 1Item | 2Assessed loss of taxable income for ‘preceding year’ | 3‘Penalty’ |
| (i) | Assessed loss | R250 |
| (ii) | R0 – R250 000 | R250 |
| (iii) | R250 001 – R500 000 | R500 |
| (iv) | R500 001 – R1 000 000 | R1 000 |
| (v) | R1 000 001 – R5 000 000 | R2 000 |
| (vi) | R5 000 001 – R10 000 000 | R4 000 |
| (vii) | R10 000 001 – R50 000 000 | R8 000 |
| (viii) | Above R50 000 000 | R16 000 |
Percentage based penalties
The percentage based penalties are imposed if SARS is satisfied that an amount of tax was not paid as and when required under a Tax Act.
Examples when the percentage-based penalty will be imposed
| Tax | Incident |
| Income Tax(ITA §35A) | When a SA resident buys immovable property from a non-resident seller and does not withhold and pay the fixed percentage to SARS, a penalty of 10% is imposed. |
| Turnover Tax(ITA 6th Sched.Par 11 (6) | A late payment penalty will be imposed if a micro-business doesn’t pay VAT, or a vendor that deregistered because the value of suppliers no longer exceeds R1million doesn’t pay VAT. |
| Provisional Tax(ITA Fourth Sched) | A 10% penalty is imposed on the late or non-payment of provisional tax (par 27) |
| A 20% penalty is imposed if a taxpayer fails to file an estimate (par 20A) | |
| A 20% penalty is imposed if the taxpayer understates a provisional tax estimate by a particular percentage of the taxable income (par 20) | |
| Employers & employees’ tax(ITA Fourth Sched.) | If an employer fails to file a return (reconciliation) SARS can impose a percentage based penalty for each month that the employer fails to submit a complete return, which in total may not exceed 10 percent of the total amount of employee’s tax |
| If employees’ tax is not paid the employer must pay a 10% penalty | |
| A 10% penalty is imposed if UIF contributions are not paid | |
| Failure to indicate taxable fringe benefits in employees’ tax certificates triggers a penalty equal to 10% of the cash equivalent of the taxable benefit. | |
| Value-Added Tax(VAT Act §39) | Failing to pay by the 25th attracts a 10% penalty. |
Understatement Penalties:
An understatement penalty may only be imposed if the fiscus is prejudiced by the Taxpayers’ conduct in reporting i.e.:
- – Filed a return
- – Filed a return but omitted an item from the return
- – Filed a return in which an incorrect statement was made
Table for understatement penalties
| 1Item | 2Behaviour | 3StandardCase | 4If obstructive,Or if it is a“repeat case” | 5Voluntary disclosureafter notification ofaudit | 6Voluntary disclosurebefore notification of audit |
| (i) | Substantial understatement | 25% | 50% | 5% | 0% |
| (ii) | Reasonable care not taken in completing return | 50% | 75% | 25% | 0% |
| (iii) | No reasonable grounds for tax position taken | 75% | 100% | 35% | 0% |
| (iv) | Gross negligence | 100% | 125% | 50% | 5% |
| (v) | Intentional tax evasion | 150% | 200% | 75% | 10% |
Taxpayers be aware of non-compliance, SARS is ready to penalize you.
This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.
