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Understatement Penalties

Tuesday, 10 October 2017   (0 Comments)
Posted by: Author: Nico Theron
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Author: Nico Theron (Unicus)

In a recent case before the Johannesburg Tax Court (IT 14247), the court was faced with the question of what constitutes a prejudice to SARS or the fiscus. Understanding this is important because SARS can only raise an understatement penalty (USP) if there was a prejudice to SARS or the fiscus. SARS can also only raise an additional assessment under section 92 of the Tax Administration Act, No. 28 of 2011 if there was prejudice to SARS or the fiscus.

The facts of the case are briefly that:

  • the taxpayer had paid provisional tax in respect of certain tax years;
  • however, when filing its income tax returns for those years indicated that there is no liability as the taxpayer had not traded;
  • during a SARS audit it transpired that the taxpayer in fact did trade for the relevant years and incorrectly disclosed that it had no income;
  • the taxpayer was also found liable for registration for VAT and to submit VAT returns, which it had not done;
  • SARS imposed an USP on the taxpayer on both income tax and VAT; and
  • the court was required to determine whether or not there was prejudice to SARS or the fiscus and therefore whether or not the USP was correctly imposed. Where found to have been correctly imposed, the court was asked to increase the amount of the penalty.

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