General
1739. Administrative penalties
June 2009 – Issue 118

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Previously, the Income Tax Act, Act No 58 of 1962 (the Act), contained various provisions whereby the Commissioner: South African Revenue Service (the Commissioner) could levy penalties on taxpayers for non-compliance with the provisions of the Act. Those various provisions have now been repealed and replaced with a composite provision, contained in section 75B of the Act. Section 75B, therefore, contains the new framework whereby the Commissioner will impose administrative penalties in the case of non-compliance by taxpayers. The President issued the required Proclamation in Government Gazette No. 31763 on 31 December 2008, specifying that the date on which section 15(1) of the Taxation Laws Second Amendment Act, 2008 (Act No. 4 of 2008), takes effect shall be 31 December 2008.

 

In addition, the Minister issued the Regulations required under section 75B of the Act in Government Gazette No. 31764 on 31 December 2008. The administrative penalties contained in the Regulations, have, subject to what is stated below, take effect from 1 January 2009.

 

Previously, there was a concern that the penalties imposed for non-compliance were not imposed consistently on different taxpayers and also that different Receiver of Revenue offices treated similar taxpayers very differently. The purpose of the Regulations is, therefore, to ensure and encourage compliance with the provisions of the Act and also to enhance the administration of the tax system. In addition, it is stated in the Regulations that it is intended that any penalties levied are imposed impartially, consistently and proportionately to the seriousness of the non-compliance committed by the taxpayer.

 

The Regulations imposes two types of penalties, namely the so-called "fixed amount penalty" contained in paragraph 4 of the Regulations and the "percentage based penalty" contained in paragraph 6 of the Regulations. Each of these categories of penalties will be discussed below.

 

Non-compliance giving rise to the "fixed amount penalty"

The following non-compliance with the provisions of the Act, will give rise to the "fixed amount penalty", set out in the table referred to below:

·      Failure to register as a taxpayer or otherwise register as and when required under the Act;

·      Failure to inform the Commissioner of a change of address or other details as and when required under the Act;

·      Failure by a company to appoint a Public Officer, appoint a place for service or delivery of notices and documents, keep the office of Public Officer filled, maintain a place for the service or delivery of notices or to notify the Commissioner of any change of Public Officer or of the place for service or delivery of notices as and when required by the Act;

·      Failure to submit a return or other related documents or information as and when required under the Act;

·      Failure to furnish, produce or make available information, documents or things as and when required under the Act;

·      Failure to reply to or answer a question put to a person as and when required under the Act;

·      Failure to attend or give evidence as and when required under the Act;

·      Failure by an employer to notify SARS of a change of address or the fact of having ceased to be an employer as and when required under the Act;

·      Failure by an employer to submit a monthly declaration of employees’ tax as and when required by the Act;

·      Failure by an employer to provide details of an employee;

·      Failure to deliver an employees’ tax certificate to one (or more) employee(s) or former employee(s) as and when required by the Act;

·      Delivery by an employer of an employees’ tax certificate in contravention of the requirement that the employer must first render an employees’ tax return as and when required by the Act;

·      Failure by a provisional taxpayer, who is liable for the payment of normal tax in respect of an amount of taxable income derived by the provisional taxpayer during a year of assessment, to submit an estimate of taxable income as and when required by the Act; or

·      Any other non-compliance with an obligation imposed under the Act, except those referred to in section 80S, paragraph 5(5) of the Fourth Schedule, or paragraph 17(4) of the Seventh Schedule to the Act.

 

Where a taxpayer has committed an offence as referred to above, the Commissioner may impose a penalty in accordance with the following table:

 

Item

Assessed loss or taxable income for preceding year

Penalty

(i)

Assessed loss

R250

(ii)

R0 — R250 000

R250

(iii)

R250 001 — R500 000

R500

(iv)

R500 001 — R1 000 000

R1 000

(v)

R1 000 001 — R5 000 000

R2 000

(vi)

R5 000 001 — R10 000 000

R4 000

(vii)

R10 000 001 — R50 000 000

R8 000

(viii)

Above R50 000 000

R16 000

 

It must be noted that the amount of the penalty set out in column 3 will increase automatically by the same amount for each month or part thereof that the taxpayer fails to remedy the non-compliance within 30 days after the date of the delivery of the penalty assessment, where SARS is in possession of the current address of the taxpayer, and is able to deliver the assessment, but limited to 35 months after the date of delivery. Thus, the penalty that could be levied by SARS will range from an amount of R250 for being in default for one month up to a total of 36 times the amount of the penalty referred to above. Thus, in the case of a taxpayer reflecting taxable income for the preceding year amounting to R250 001 to R500 000, the penalty could range from R500 to R18 000, depending on when the taxpayer remedies the default. In the case of a company, with a taxable income in excess of R50 million, the administrative penalty could range from R16 000 to an amount of R576 000 if the default is not remedied within 36 months.

 

Where, however, SARS is not in possession of the current address of the taxpayer and is unable to deliver the penalty assessment, the administrative penalty is limited to 47 months after the date of compliance, with the result that the administrative penalty could amount to a total of R768 000 in a case of a taxpayer with a taxable income in excess of R50 million. There is, therefore, an incentive to taxpayers to remedy non-compliance with the Act as soon as possible, thereby reducing the amount of the administrative penalty that can be imposed.

 

Those companies that are listed on a ‘recognised stock exchange’ as defined in paragraph 1 of the Eighth Schedule to the Act, or a company whose gross receipts or accruals for the preceding year exceeds R100 million, or a company that forms part of a "group of companies" as defined in section 1 of the Act, which includes a company described in the aforementioned paragraphs, shall be treated as falling under item (vii) of the table set out above.

 

Where the Commissioner does not know the taxable income derived by the taxpayer, he is authorised to impose an administrative penalty in accordance with item (viii) of column one of the table set out above, or may estimate the amount of taxable income of that taxpayer for the preceding year based on available information and impose a penalty in accordance with the applicable item contained in column one of the table set out above. Where, however, the Commissioner subsequently ascertains the actual taxable income derived by the taxpayer, the administrative penalty must be increased where the taxable income falls into a different category to that relied on in determining the estimate of the administrative penalty originally imposed.

 

Percentage based penalty

In addition to any other penalties, interest or charges that a taxpayer may be subject to under the provisions of the Regulations or the Act, the Commissioner may impose a penalty equal to 10% of the:

·      Amount of employees’ tax that an employer fails to pay as and when due under the provisions of the Act;

·      Total amount of employees’ tax deducted or withheld or that should have been deducted or withheld by an employer from the remuneration of its employees where the employer fails to submit an employees’ tax return as and when required under the Act; or

·      Amount of provisional tax that a provisional taxpayer fails to pay as and when required under the Act.

 

The above-mentioned percentage based penalties for non-compliance take effect on the date on which the relevant sections of the Revenue Laws Second Amendment Act, 2008 come into operation. The Minister has not yet issued the required Gazette and thus the above part of the Regulations is not yet effective. However, the Act contains similar provisions whereby the above penalties may be levied.

 

SARS procedures for imposing administrative penalties

Paragraph 7 of the Regulations provide that any penalty imposed under paragraph 5 or 6 must be levied by way of a penalty assessment. The Regulations define a "penalty assessment" as comprising an assessment issued in respect of a penalty only or tax and a penalty, which are assessed at the same time. The Regulations require that the Commissioner must give notice of the assessment in the format as he or she may decide to the taxpayer, including the following information:

·      The non-compliance in respect of which the penalty is assessed and its duration.

·      The amount of the penalty assessed.

·      The due date for paying the penalty.

·      The automatic increase of the penalty and

·      A summary of procedures for requesting remittance of the penalty.

 

The administrative penalty is due upon assessment and must be paid on or before the due date stated in the notice of the penalty assessment, no different to income tax reflected as payable on an income tax assessment.

 

Procedures requesting remittance or waiver of administrative penalties

A taxpayer who is dissatisfied with the penalty assessment issued by SARS may, on or before the due date for payment contained in the penalty assessment, in such form or manner, as may be prescribed by SARS, request that the Commissioner remits the penalty in accordance with Part V of the Regulations.

 

A taxpayer seeking remittance of administrative penalties must describe the circumstances which prevented them from complying with the relevant obligation contained in the Act in respect of which the penalty was imposed. The taxpayer must submit supporting documents and information that may be required by the Commissioner. Paragraph 8 of the Regulations provides that SARS may not invoke collection steps relating to the penalty amount from the period commencing on the day that SARS receives the remittance for the administrative penalty request, and ending 30 days after notice has been given of the Commissioner’s decision, unless SARS has reason to believe that there is a risk of dissipation of assets by the taxpayer, or that fraud is involved in the non-compliance by the taxpayer, or that the grounds for remittance are fraudulent.

 

Circumstances where administrative penalties will be remitted

Where administrative penalties are imposed on a taxpayer for the failure to register or failing to notify SARS of a change of address, the Commissioner may remit the penalty in whole or in part, where the failure to register was discovered as a result of the taxpayer approaching SARS voluntarily, or notification to SARS of a change of address was remedied by the taxpayer before SARS became aware of the changed address and that the taxpayer has filed all tax returns required by SARS under the provisions of the Act.

 

In those cases where a penalty has been imposed in respect of the first incidence of non-compliance prescribed in paragraph 4(6) of the Regulations, or an incidence of non-compliance described in paragraph 4, where the duration of non-compliance is shorter than seven days, or an incidence of non-compliance described in paragraph 6 involving an amount of less than R2 000, or where the duration of non-compliance is less than seven days, the Commissioner may remit the penalty or a part thereof, where the Commissioner is satisfied that reasonable circumstances for the non-compliance exist and that the noncompliance in issue has been remedied.

 

The Commissioner is empowered, under the Regulations, to remit the penalty or a portion thereof, where the Commissioner is satisfied that one or more of the circumstances defined as "exceptional circumstances" in paragraph 11(2) of the Regulations, rendered the taxpayer on whom the penalty was imposed, incapable of complying with the relevant obligation imposed under the provisions of the Act. The Regulations define "exceptional circumstances" as follows:

·      A natural human-made disaster;

·      A civil disturbance or disruption in services;

·      A serious illness or accident;

·      Serious emotional or mental distress;

·      Any of the following acts by SARS:

o     a capturing error;

o     a processing delay;

o     provision of incorrect information in an official publication issued by SARS (this includes binding public rulings, interpretation note, practice note or media release);

o     a delay in providing information to any person; or

o     failure by SARS to provide sufficient time for an adequate response to a request for information by SARS, or

·      Serious financial hardship, such as

o     in the case of an individual, lack of basic living requirements;

o     in the case of a business, an immediate danger that the continuity of business operations and continuation of employment of its employees are jeopardised, or

·      Any other circumstances of analogous seriousness.

 

Administrative penalty incorrectly assessed

Where the Commissioner is satisfied that the administrative penalty was not levied in accordance with the Regulations referred to above, the Commissioner may, within three years of the penalty assessment, issue an altered assessment to reflect the correct administrative penalties.

 

Objection and appeal

Under the Regulations, the taxpayer has a right to object and appeal against a penalty assessment where the objection relates to a factual dispute or against the decision by the Commissioner not to remit a penalty in whole or in part.

 

Effective date of the Regulations

The new administrative penalties apply to non-compliance committed by a taxpayer on or after the date on which the Regulations took effect, namely, 1 January 2009. The Regulations will also apply in respect of a continuous failure by a person to comply with an obligation that existed on the date that the Regulations came into effect, in which case the date on which the non-compliance occurred will be regarded as a date 90 days after the Regulations came into effect, namely, 1 January 2009. The Regulations provide that the duration of non-compliance for purposes of regulations occurring before the Regulations took effect will not be taken into account.

 

Conclusion

The new Regulations governing the imposition of administrative penalties seeks to ensure that taxpayers will be treated in the same manner for the same offence, under the provisions of the Act. The administrative penalties are far more onerous than what was previously imposed by SARS. Historically, SARS levied penalties of a few hundred Rand for the late submission of an income tax return, whereas the penalties levied under the Regulations will now be increased, depending on the duration of the non-compliance by the taxpayer.

 

Taxpayers retain the right to object and, ultimately, appeal against penalty assessments issued by SARS and, no doubt, the disputes between taxpayers and SARS will increase once the new administrative penalties are imposed.

 

The Regulations only deal with administrative penalties payable under the Act and do not alter the penalties that may be imposed for Value-Added Tax, securities transfer tax, transfer duty, skills development levies and other taxes administered by SARS.

 

Edward Nathan Sonnenbergs

 

IT Act:S 75B

Taxation Laws Second Amendment Act No. 4 of 2008: s 15

Regulation promulgated under s 75B

IT Act:S 1 definition of " group of companies"

IT Act:S 80S

IT Act:4th Schedule par 5(5)

IT Act:7th Schedule par 17(4)

IT Act:8th Schedule par 1 "definition of recognised stock exchange"