An overview of the administrative non-compliance penalties under the Tax Administration Act
30 August 2012
Posted by: SAIT Technical
By Hanneke Farrand and Esther Geldenhuys (ENS Tax Ensight)
The Tax Administration Act 28 of 2011 ("TAA”) although promulgated, will only come into operation on a date to be determined by the President by proclamation in the Government Gazette. The South African Revenue Service ("SARS”) has indicated that this will be within the next three months. The TAA provides for two types of penalties to be imposed, namely administrative non-compliance penalties contained in Chapter 15 of the TAA, and understatement penalties contained in Chapter 16 of the TAA. The administrative non-compliance penalties will be discussed in further detail below.
There are two different types of administrative non-compliance penalties, namely; fixed amount penalties and percentage based penalties, both of which relate to the failure to comply with administrative requirements of a tax act. These penalties are very similar to the current administrative penalties for non-compliance imposed under section 75B of the Income Tax Act 58 of 1962 (the "Income Tax Act”) and its Regulations.
Fixed amount penalties in terms of the TAA
Section 210 of the TAA states that when SARS is satisfied that "non-compliance” by a person exists, SARS must impose the appropriate penalty in accordance with the table in section 211 of the TAA. "Non-compliance” is defined as a failure to comply with an obligation that is imposed by or under a tax act and is listed in a public notice issued by the Commissioner, other than the failure to pay tax subject to a percentage based penalty and non-compliance subject to an understatement penalty.
The fixed amount penalty imposed by the table in section 211 varies from R250 to R16 000 per month and depends on the amount of an assessed loss or taxable income for the preceding year. The amount of the penalty will increase automatically by the same amount for each month that the person fails to remedy the non-compliance. According to the Explanatory Memorandum, fixed amount administrative penalties may only be imposed in respect of non-compliance listed in a public notice by the Commissioner, and not any non-compliance with an obligation under a tax act.
Percentage based penalties in the TAA
In terms of section 213 of the TAA, when SARS is satisfied that an amount of tax was not paid as and when required under a tax act, SARS must, in addition to any other penalty or interest for which a person may be liable under Chapter 15, impose a penalty equal to the percentage of the amount of unpaid tax as prescribed in the relevant tax act. The Explanatory Memorandum states that the procedures for the imposition and remittance of a percentage based penalty are regulated by the TAA, but the circumstances that trigger the imposition of the penalty remain in that tax act.
Comparison to penalties under the Income Tax Act
Section 75B of the Income Tax Act makes provision for an administrative penalty in respect of non-compliance with any procedural or administrative action or duty imposed or requested in terms of the Income Tax Act. The penalties system as set out in the section 75B Regulations came into effect on 1 January 2009 and provides for penalties for a range of non-compliance, which are determined according to the taxpayer's assessed loss or taxable income for the preceding year. The penalties range from R250 up to R16 000 a month. This is the same as the amounts of the administrative non-compliance penalties contained in the section 211 table of the TAA. The penalties system in the Regulations cover a range of non-compliance including the failure to register as a taxpayer, the failure to inform SARS of a change of address and other details, as well as the failure to submit a return, other documents and information. It also contains a catch all provision that includes any other non-compliance with an obligation imposed under the Income Tax Act.
The Regulations also provide for percentage-based penalties for non-compliance by employers, in respect of their employees' tax withholding obligation, and by provisional taxpayers in respect of the filing obligations imposed on them.
The TAA consolidates the common administrative provisions currently contained in a number of the tax acts. Where the TAA refers to "a tax act” it is therefore referring to, inter alia, the Income Tax Act, the Value-Added Tax Act 89 of 1991, the Transfer Duty Act 40 of 1949, and the Estate Duty Act 45 of 1955.
The percentage based penalties contained in the Income Tax Act are similar to those provided for in the TAA. The TAA however seems broader in scope in that it does not specifically list the non-compliances as currently set out in the section 75B Regulations. The TAA merely requires that "an amount of tax was not paid as and when required under a tax act”. Furthermore, the Regulations impose a 10 per cent penalty whereas the TAA imposes a penalty equal to "the percentage of the amount of unpaid tax as prescribed in the tax act”. It seems as if this percentage will still have to be determined.