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06 February 2018 South African Revenue Service issues draft guide on understatement penalties for public comment On the 22 January 2018, the South African Revenue Service (SARS) issued a draft guide on understatement penalties for public comment by 12 February 2018. The purpose of the guide is to provide taxpayers with an understanding of understatement penalties and their application. In terms of the understatement penalty provisions contained in the Tax Administration Act, any taxpayer must pay, in addition to the tax payable, an understatement penalty in the case of any understatement. An understatement is regarded as a prejudice to SARS or the fiscal authority, as a result of an act of non-compliance, including, inter alia, a default in rendering a return, an omission from a return or an incorrect statement in a return. The purpose of understatement penalties is to encourage voluntary compliance and prevent non-compliance and tax evasion. SARS bears the burden of proving the facts on which the imposition of an understatement penalty is based. Before SARS can impose an understatement penalty it has to have proof to support the specific behavior involved and the prescribed circumstances determine the amount of the understatement penalty to be imposed. If none of the behaviors set forth in the legislation are present, SARS may not impose an understatement penalty. Similarly an understatement penalty may not be imposed if the understatement results from an inadvertent bona fide error. In its draft guide, SARS sets out its interpretation of the listed behaviors and the prescribed circumstances under which understatement penalties are imposed. In the case of understatement by an employer, due to the underwithholding of employees' tax, SARS may impose understatement penalties if it can prove that any of the listed behaviors exist. Generally, an employer is expected to take reasonable care in determining its employees' tax liability and act to ensure that all benefits and remuneration are correctly reported and remitted to SARS.1 Any non-compliance in this regard may result in a minimum understatement penalty of up to 25%, depending on the prescribed circumstances. Employers should be aware of the severity of the understatement penalty regime and take steps to ensure compliance with the requirements of the various Tax Acts applicable to employers, including:
Where any non-compliance is identified, such non-compliance should be reported to SARS under the voluntary disclosure program in order to qualify for the relief under the program. 1 This includes the correct amount of employees' tax, skills development levy and unemployment insurance fund contributions.
Document ID: 2018-5251 |
