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The 4 Types of SARS Interest and Penalties

1) Fixed Amount Penalties

Information from Section 210

Non-compliance subject to penalty. —

1. If SARS is satisfied that non-compliance by a person referred to in subsection (2) exists, SARS must impose the appropriate ‘penalty’ in accordance with the Table in section 211.
2. Non-compliance is 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—
   1. the failure to pay tax subject to a percentage-based penalty under Part C;
   2. non-compliance in respect of which an understatement penalty under Chapter 16 has been imposed; or
   3. the failure to disclose information subject to a reportable arrangement penalty under section 212.
3. Section 211

Fixed amount penalty table. —

For the noncompliance referred to in section 210, SARS must impose a ‘penalty’ in accordance with the following Table— Table: A mount of Administrative Non-Compliance Penalty The amount of the ‘penalty’ in column 3 will increase automatically by the same amount for each month, or part thereof, that the person fails to remedy the non-compliance within one month after—

1. the date of assessment of the penalty, if SARS is in possession of the current address of the person and can deliver the assessment, but is limited to 35 months from the date of the assessment; or
2. the date of the non-compliance if SARS is not in possession of the current address of the person and is unable to deliver the ‘penalty assessment’ but limited to 47 months after the date of non-compliance.

Section 211 (Examples)

Natural person A has not submitted an income tax return for the 2015 year of assessment to date. Assume the return was due by 25 November 2015. Assume further that person A’s taxable income for the 2014 year of assessment was R1 000 000. Assume the penalty assessment was raised on 26 November 2015 and delivered to the taxpayer. Assume further SARS has the person A’s address

Penalty calculated as follows:

In relation to 2015:

Initial penalty – R1 000.

Number of months of non-compliance counting from 1 Month of date of penalty assessment - +/-70 months. Total penalty: R1 000 + (R1 000 x 70) = R70 000

Capped to 35 months: R1 000 + (R1 000 x 35) = R36 000

Section 211 (continued)

1. The following persons, except those falling under item (viii) of the Table or those that did not trade during the year of assessment, are treated as falling under item (vii) of the Table—
   1. a company listed on a recognized stock exchange as referred to in paragraph 1 of the Eighth Schedule to the Income Tax Act.
   2. a company whose gross receipts or accruals for the ‘preceding year’ exceed R500 million.
   3. a company that forms part of a “group of companies” as defined in section 1 of the Income Tax Act, which group includes a company described in item (a) or (b); or
   4. a person or entity, exempt from income tax under the Income Tax Act but liable to tax under another tax Act, whose gross receipts or accruals exceed R30 million.

5)      SARS may, except in the case of persons referred to in subsections (3) (a) to (c), if the taxable income of the relevant person for the ‘preceding year’ is unknown or that person was not a taxpayer in that year—

1. impose a ‘penalty’ in accordance with item (ii) of column 1 of the Table; or
2. estimate the amount of taxable income of the relevant person for the ‘preceding year’ based on available relevant material and impose a ‘penalty ‘in accordance with the applicable item in column 1 of the Table.

1. Where, upon determining the actual taxable income or assessed loss of the person in respect of whom a ‘penalty’ was imposed under subsection (4), it appears that the person falls within another item in column 1 of the Table, the ‘penalty’ must be adjusted in accordance with the applicable item in that column with effect from the date of the imposition of the ‘penalty’ issued under subsection (4).

2) Reportable Arrangement Penalty

What is a reportable arrangement?

An 'arrangement' is a reportable arrangement as set out in terms of section 35(1) and (2) of the TAA. It includes arrangements where a 'tax benefit' is or will be derived or is assumed to be derived by any 'participant' due to the 'arrangement

Section 35(1) Section 35(2):

If there is an obligation to report and it is not reported – Penalty.

The penalty is – R50 000 in the case of a participant other than the promoter; or R100 000 in the case of the promoter. The respective amount is charged for each month that the failure continues, for up to 12 months. The penalty is doubled if the amount of anticipated tax benefit for the participant as a result of the arrangement exceeds R5million and is trebled if that benefit exceeds R10 million.

3) Percentage Bases Penalty

Section 213 (quote)

1. If 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, impose a ‘penalty’ equal to the percentage of the amount of unpaid tax as prescribed in the tax Act.
2. In the event of a change to the amount of tax in respect of which a ‘penalty’ was imposed under subsection (1), the ‘penalty’ must be adjusted accordingly with effect from the date of the imposition of the ‘penalty’.

Section 213 (continued)

Late payment of:

PAYE – paragraph 6(1) of the 4th schedule and paragraph 16(4) 4th schedule – 10% of total PAYE. VAT – Section 39 – 10%.

Provisional tax - paragraph 27 – 10%. Dividends withholding tax.

Interest withholding tax. Withholding tax on royalties?

Withholding tax on fixed property – section 35A(9)(b) – 10%. Withholding tax on foreign entertainers and sports persons? Donations tax?

4) Understatement Penalty

• Section 222

Understatement; and Not a bona fide inadvertent error. Meaning of bona fide inadvertent error:

ITC 1890

“an innocent misstatement by a taxpayer on his or her return, resulting in an understatement, while acting in good faith and without the intention to deceive.”

SARS (SARS’ Draft Guide to Understatement Penalties):

“It is a misstatement that genuinely is not achieved through or does not result from deliberate planning; or a misstatement that is genuinely, sincerely, and honestly unintentional, unintended, unpremeditated, unplanned and unwitting”.

“The focus is not the bona fides of the error; it is the bona fides of its accidental nature”.

(final guide published not exactly the same wording – but similar views expressed).

*    Section 223 - Understatement Penalty Percentage Table – the percentages to which the shortfall is applied

Call Zeelie Professional Accountants SA today to assist with your Tax Returns to ensure what you have declared is in fact correct and compliant.

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