Good news for (late) provisional taxpayers
21 January 2015
Posted by: Author: Joon Chong
Author: Joon Chong (Webber Wentzel)
The Tax Administration Laws Amendment
Act 44 of 2014 was published in the Government
Gazette on 20 January 2015 ("TALAA
2014"). It is unusual that tax amendment statutes bring good news to taxpayers
but there is some good news in the TALAA 2014 for provisional taxpayers.
All references to "para" in
this article are to paragraphs in the Fourth Schedule of the Income Tax Act 58
of 1962 ("the Income Tax Act").
Prior to the amendments taking effect, the
Fourth Schedule of the Income Tax Act provided for three types of penalties relevant
to the submission of the second provisional tax return-
20% year-end inadequate estimate penalty (para 20) ("Inadequate Estimate Penalty");
20% late submission penalty (para 20A) ("Late Submission Penalty"); and
10% late payment penalty (para 27) ("Late
All these penalties are percentage based
penalties imposed in terms of Chapter 15 of the Tax Administration Act 28 of
A company with more than R1 million in
taxable income that submitted its second provisional tax return late (i.e.
after the last day of its year of assessment) using an inadequate estimate of
taxable income (i.e. less than 80% of its actual taxable income) could potentially
suffer all three penalties in the following manner:
Estimate Penalty, which is 20% of the difference between
(i) the normal tax payable on 80% of its
actual taxable income; and
provisional tax payments for the year of assessment paid before the end of that
Submission Penalty, which is 20% of the difference between
the normal tax on its estimated taxable income for the year of assessment; and
the first provisional tax payment for that year.
Payment Penalty, which is 10% of the second provisional tax amount not paid by
the last day of the year of assessment.
to the Late Submission Penalty
The TALAA 2014 provides that
the Late Submission Penalty is to be repealed with effect from years of
assessment commencing on or after 1 March 2015.
to the Inadequate Estimate Penalty
TALAA 2014 provides for the following amendments to the Inadequate Estimate
Penalty. These amendments take effect from years of assessment commencing on or
after 1 March 2014.
Inadequate Estimate Penalty is to be reduced by any Late Payment Penalty
imposed for the same provisional tax period.
Inadequate Estimate Penalty is to be calculated using the net normal tax
payable on actual taxable income, i.e. the normal tax amount after deducting
any applicable rebates.
TALAA 2014 provides that para 20(3) is to be deleted. Prior to the deletion, when
the Commissioner increases the final or last estimate in terms of
para 19(3), para 20(3) provided that the Inadequate Estimate Penalty would
not apply in relation to any such increased final or last estimate. With the
deletion, any calculation of the Inadequate Estimate Penalty must take into
account the increased final or last estimate made by the Commissioner. This
means that although the taxpayer would be liable for increased provisional tax,
this increased estimate could potentially reduce its Inadequate Estimate
Penalty or result in no such penalty.
the insertion of para 20(2A), a taxpayer that did not submit a second
provisional tax return will be deemed to have made a nil submission. This
prevents any argument by the taxpayer that no Inadequate Estimate Penalty can
be imposed when no estimate is submitted as no penalty can be calculated.
is also an insertion in para 20(2C) (which originally was in para 20A(2)) that provides
for the Commissioner to remit the whole or any part of the Inadequate Estimate
Penalty imposed if the failure to submit the second provisional tax return
timeously was not due to an intent to evade or postpone the payment of
provisional tax or normal tax. This insertion takes effect from years of
assessment commencing on or after 1 March 2015.
this no-intent ground to request for remission of the Inadequate Estimate
Penalty is in addition to the existing grounds in para 20(2) and section 217(3)
of the TAA.
of the amendments
purpose for the above amendments is set out in paragraph 2.11 of the Memorandum on the objects of the Tax
Administration Laws Amendment Bill, 2014, which provides as follows:
"An underestimation contemplated in paragraph 20 of the Fourth Schedule
may result in a penalty under both paragraphs 20(1) and 20A(1) for the same
action and may be regarded as too onerous. Also, paragraph 20 has been
amended to allow a reduction of a penalty under paragraph 20(1) by the amount
of any penalty under paragraph 27 for the late payment of provisional tax. This
approach is thus aligned with the Tax Administration Act, 2011 scheme under
which a default may not be subjected to both an administrative non-compliance
penalty and an understatement penalty." (My emphasis.)
news for the taxpayer indeed!
this means for the taxpayer going forward
that submits a late second provisional tax return which has an estimated
taxable income which is less than 80% of its actual taxable income will have an
Inadequate Estimate Penalty and a Late Payment Penalty for that provisional tax
period. The taxpayer's Inadequate Estimate Penalty should be reduced by the
Late Payment Penalty for that period. There should not be a third penalty in
the form of a Late Submission Penalty.
taxpayer should request for remission of the Inadequate Estimate Penalty on the
basis that there was no intent to evade or postpone the payment of tax by the
late submission, and that the estimate was seriously calculated with due regard
to the relevant factors and not deliberately or negligently understated.
Further grounds to request remission are in section 217(3) of the TAA - that
this was a "first incidence" of non-compliance, reasonable grounds
for the non-compliance exist and the non-compliance has been remedied.
taxpayer should request for remission of the Late Payment Penalty in terms of
the grounds in section 217(3) of the TAA.
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