Tax Penalties on Companies

On 14 December 2018, the public notice that allows the South African Revenue Service (“SARS”) to impose penalties on companies for not submitting income tax returns was gazette. This is a new addition to the legion of penalties already faced by companies and permits the imposition of a monthly penalty on a company ranging from anything between R250 to R16 000 a month.

Other penalties also faced by companies include:

  • A 10% penalty for not filing a VAT return on time (if VAT registered);
  • A 10% penalty for not filing a employees’ tax return on time (if registered as employer)
  • A 10% penalty for not filing a provisional tax return on time;
  • A 20% penalty for not accurately submitting a provisional tax return; and
  • A penalty ranging from anything between 5% and 200% in the case of a taxpayer making an understatement.

Ensuring tax compliance by corporates is obviously important, hence the always lingering threat of sanction in the form of a monetary penalty for non-compliance. However, ensuring tax compliance should never amount to an abuse of power or infringement of taxpayer’s rights.

The imposition of all of these penalties are governed by legislation which prescribes process by which SARS must abide before any of these penalties may be imposed. Failure by SARS to do so arguably renders any penalty assessment/assessment that includes a penalty, invalid.

Take for example the new penalty effective from 14 December 2018. In terms of section 210 of the Tax Administration Act, No. 28 of 2011 (“the TAA”) read with the public notice of 14 December 2018, SARS must issue a company with a final demand to submit outstanding income tax returns before SARS can impose the penalty. Further still, such final demand must refer to the public notice of 14 December 2018. If no such final demand has been issued or has been issued but is deficient, any penalty imposed has arguably been done so invalidly and must be withdrawn.

Whilst it may seem unlikely for any defense against SARS based on procedural deficiency to be successful there are two recent landmark court judgments that proves the contrary. In one, the High Court, ruling in favor of the taxpayer stated:

“The least that is expected of [SARS] is to comply with its own legislation and most importantly promote the values of our Constitution in the exercise of its public power. This [SARS] failed to do. In failing to provide [the taxpayer] with all the information prescribed in terms of section 96 which … [SARS] was obliged to provide [the taxpayer], it acted unlawfully and unconstitutionally.” [1] [My insertions].

Companies who simply accept or assume that SARS always complies with its own legislation may find that it is paying more than its fair share or taxes (or penalties). It is, in our experience, always worth having any penalty imposed by SARS (or any assessment raised by SARS, for that matter), reviewed by tax experts to ensure due compliance by all parties in the tax administration and compliance process. Feel free to contact us with any queries.

[1] Nondabula v Commissioner: SARS and Another (4062/2016) [2017] ZAECMHC 21; 2018 (3) SA 541 (ECM) (27 June 2017) at par 26

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