Tax Alert
25 October 2013
SARS does about-turn on understatement
penalties
The Tax Administration Laws Amendment Bill 40 of 2013 (TALAB) was tabled in
parliament yesterday and contains substantial proposed changes to the understatement
penalty regime, in particular with respect to the levying of penalties in respect of tax
returns submitted before the TAA came into effect.
The Tax Administration Act 2011 (TAA)
came into effect on 1 October 2012 and
introduced a new understatement
penalty regime, which although similar
in principle to the additional tax
regime in the Income Tax Act and
Value-Added Tax Act, provides for
fixed percentage penalties based on
taxpayer behavior rather than a
percentage at the discretion of SARS as
was the case with the additional tax
regime.
SARS has adopted the position that the
new understatement penalty regime
may be applied to tax returns that were
submitted prior to the TAA coming into
effect on 1 October 2012. However,
numerous taxpayers and tax advisers (including
ourselves) had taken the view that SARS was not
entitled to levy the new understatement penalties in
such circumstances, but was rather obliged to apply the
old additional tax regime where appropriate. This view
was based on an interpretation of the transitional
provisions of the TAA (notably section 270(6)) as well
as common law and constitutional law principles.
Contrary to the position adopted by SARS at the time
that the draft TALAB was published and in statements
made to the Standing Committee on Finance, SARS has
seemingly changed its position somewhat and the
TALAB now contains a number of fundamental
proposed changes to the transitional provisions dealing
with understatement penalties. The proposed changes
are, briefly, the following-
•
Section 270(6) is amended to provide that, in addition
to the existing position where the old additional taxes
may be imposed where they were capable of being
imposed prior to the effective date of the TAA, the old
additional taxes may also be imposed where the
understatement penalties under the TAA in respect of
an understatement that occurred before the effective
date cannot be imposed.
•
The term “capable of being imposed” is proposed to be
defined as meaning where the verification, audit or
investigation necessary to determine the additional tax
SARS does about-turn on understatement penalties
had been completed. We had held the view, supported
by counsel, that the term simply required that a return
had been submitted or tax position adopted.
•
The requirement that an opinion from a tax
practitioner must have been obtained before the tax
return was due in order to qualify for the potential
remittance of an understatement penalty for a
substantial understatement is regarded as having been
met if the return was due before the effective date of
the TAA. Note that it is still required that an opinion
must have been obtained, but that opinion may be
obtained subsequent to the due date of the return.
•
It is clarified that a person who made a valid voluntary
disclosure before the effective date of the TAA qualifies
for the relief from understatement penalties.
•
Finally, in the most far-reaching amendment to the
transitional provisions, it is proposed that where an
Johannesburg
Kyle Mandy 011-797-4977
[email protected]
Pretoria
Birt Coetzer 012-429-0115
[email protected]
Cape Town
Leon Swanepoel 021-529-2376
[email protected]
understatement penalty is imposed in relation to an
understatement in a return submitted before the
effective date of the TAA, a taxpayer may object to the
penalty ando SARS may remit all or part of the penalty for a
return required under the Income Tax Act if there
were extenuating circumstances; or
o Where the return was required under the VAT Act,
SARS must remit the whole penalty unless there
was intentional tax evasion.
In a further development, it is proposed that no
understatement penalties will be levied in the case of a
“bona fide inadvertent error”.
The proposed amendments addressed above are all
proposed to be made retrospective to the effective date
of the TAA.
Durban
Jerry Maharaj 031- 271 2028
[email protected]
Port Elizabeth
Ian Olls 041-391-4474
[email protected]
East London
Susan Minnie 043 707 9600
[email protected]
Bloemfontein
Gert Nel 051-503-4222
[email protected]
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