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New penalty provisions under the Tax Administration Act: administrative noncompliance penalties

29 September 2012   (0 Comments)
Posted by: Philip Kotze
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By Heinrich Louw (DLA Cliffe Dekker Hofmeyr Tax Alert)

Chapters 15, 16 and 17 of the Tax Administration Act, No 28 of 2011 (TAA), which comes into operation on 1 October 2012, contains the new penalty provisions that are at SARS's disposal in respect of taxpayers who do not comply with administrative provisions, understate taxable amounts, or commit a criminal offence by not complying with statutory obligations or evading tax.

This article deals specifically with Chapter 15 (s208 to 220) and the so-called administrative non-compliance penalties.

The purpose of Chapter 15 is quite clear as s209 of the TAA states in no uncertain terms that it is to ensure:

  • the 'widest possible compliance' with tax legislation and the 'effective administration' of tax legislation; and
  • that administrative non-compliance penalties are imposed 'impartially, consistently, and proportionately to the seriousness and duration of the non-compliance'.

There are essentially two types of administrative non-compliance penalties, namely fixed amount penalties and percentage based penalties.

Fixed amount penalties will apply to non-compliance with obligations imposed by any tax legislation and which obligations have been listed in a notice issued by SARS. SARS has not yet issued such a list, but SARS's "Short Guide to the Tax Administration Act" lists the following obligations that taxpayers can expect to find in the list:

  • registration when required and within applicable time periods;
  • submission of supporting documents;
  • informing SARS of changes in address, representative taxpayer or banking details;
  • filing a return on time and in the prescribed form;
  • record retention;
  • providing material on request and attending interviews;
  • cooperation when audited or investigated;
  • giving full and accurate information when requesting payment arrangements.

The fixed amount of the penalty is determined with reference to the taxpayer's taxable income for the previous tax year. Section 211 of the TAA incorporates a table that lists the amount of the penalty that corresponds with a particular taxable income bracket.

Taxable income in previous tax year

Penalty

Assessed loss

R250

R0 to R250,000

R250

R250,001 to R500,000

R500

R500,001 to R1,000,000

R1,000

R1,000,001 to R5,000,000

R2,000

R5,000,001 to R10,000,000

R4,000

R10,000,001 to R50,000,000

R8,000

Above R50,000,000

R16,000

The penalty is essentially a monthly penalty, which means that a penalty in the relevant amount will be levied every month for as long as the non-compliance is not remedied, subject to certain limitations.

The first penalty will be levied as soon as there is non-compliance and SARS makes a penalty assessment.

If SARS has the address of the taxpayer and is able to deliver the assessment in respect of the penalty, the taxpayer will be afforded a month after the date of the assessment to remedy the non-compliance. If the non-compliance is not remedied within that month, a further penalty will be levied, and also for each month thereafter that the non-compliance persists, but limited to 35 months.

If SARS does not have the address of the taxpayer and is unable to deliver the assessment in respect of the penalty, the taxpayer will be afforded a month after the date of the non-compliance to remedy the non-compliance. If the non-compliance is not remedied within that month, a further penalty will be levied, and also for each month thereafter that the non-compliance persists, but limited to 47 months.

With reference to the penalty table, certain persons automatically fall within the R10 000 001 to R50 000 000 bracket:

  • Listed companies
  • A company whose gross receipts and accruals for the preceding year exceed R500 million
  • A group company in a group that contains one of the aforementioned companies
  • A person or entity exempt from income tax but liable to tax under any other tax legislation and whose receipts or accruals exceed R30 million

This does not apply to persons who fall within the next bracket or who did not trade during the year of assessment.

Percentage based penalties are penalties that may be levied in addition to other penalties such as the fixed amount penalties discussed above. These penalties relate to amounts of tax imposed by tax legislation, and which amounts are not paid as and when required. The specific percentage (of the amount not paid) is to be prescribed in the relevant tax legislation imposing the tax.

The procedure for imposing administrative non-compliance penalties requires SARS to make a penalty assessment, and to give notice to the taxpayer of such penalty assessment.

The penalty will be due upon the assessment and the date for payment will be stipulated on the assessment.

The TAA also provides for a mechanism whereby a person can request that a penalty that has been levied be remitted. Such a request is subject to time limitations, and will only be allowed in respect of certain circumstances.

Where SARS refuses to remit a penalty, a taxpayer may object to such a refusal, and also appeal against the disallowance of any such objection.

In a future article we will discuss the understatement penalty provisions in Chapter 16 of the TAA.


WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

MINIMUM REQUIREMENTS TO REGISTER

The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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