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Additional tax, administrative penalties, criminal penalties

01 December 2011   (0 Comments)
Posted by: TaxFind™
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Enforcement

Additional tax, administrative penalties, criminal penalties

They’re all imposed by SARS when you are in noncompliance. So what’s the difference between the three?

Chapter 15 of the Tax Administration Bill distinguishes between administrative penalties which are imposed for particular forms of non-compliance with its provisions which have, however, not been criminalised, and penalties by way of a fine or imprisonment for criminal offences, which are dealt with in Chapter 17. Criminal offences relating to tax evasion are separately provided for in Section 235 of the Income Tax Act.

Additional assessments

The Act provides in Section 92 that if, at any time, SARS is satisfied that an assessment does not reflect the correct application of a tax Act to its prejudice or that of the fiscus, SARS "must” make an additional assessment to correct the prejudice. It is clearly implicit that such an "additional” assessment merely corrects an error in the original assessment, and does not involve the levying of any tax or penalty over and above the amount of tax properly payable. Moreover, SARS has no discretion not to make such an additional assessment once an error is discovered, nor does it have the power to remit the tax payable in terms of such an additional assessment.

Percentage-based penalties

In terms of Section 213 of the Act, the Commissioner "must” levy a "penalty” equal to a percentage of the unpaid tax where a taxpayer did not pay an amount of tax as and when required. This is merely an administrative penalty (imposed by the Commissioner, not by a court) for forms of non-compliance that do not constitute a criminal offence.

However, even though the Act says that he "must” levy such a percentage-based penalty, the Commissioner has been given the power under Section 215 to remit the penalty on application by the taxpayer. In determining whether to remit the tax, the Commissioner must apply the principles laid down in Sections 216-218. The intent of the Act is to lay down objective criteria in this regard, and not leave the issue to the discretion of the Commissioner.

An assessment to a penalty or a decision by the Commissioner not to remit a penalty in whole in part has been specifically made subject to objection and appeal in terms of Section 230. All of the above brings welcome clarity to what has hither to been an untidy situation under the Income Tax Act. The confusion between additional tax and penalties under the Income Tax Act

In the context of the Income Tax Act (as it is prior to the coming into force of the Tax Administration Act), so-called "additional tax” (which was levied in terms of the to-be-repealed Section 76 of the Income Tax Act on a taxpayer who had made default in rendering a return or who had omitted amounts from his return or had made an incorrect statement in his return) was often colloquially called "penalty tax”, although the latter was not an expression used in the  Act.

The terminology was confusing—such "additional tax” was in fact not an amount of tax at all, but was a penalty for non compliance with the taxpayer's statutory obligations. Moreover, to refer to such additional tax as "penalty tax” (as was commonly done) added to the confusion, because this label (wrongly) suggested that it was imposed for the commission of a criminal offence when, in reality, it was merely a non-criminal administrative penalty imposed on account of the taxpayer's default, omission or misstatement.

This article first appeared in PricewaterhouseCoopers’ in-house tax publication, PwC Synopsis.

Source: By PricewaterhouseCoopers (Tax breaks)


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