Admin Penalty | South African Revenue Service - SARS

SARS Administrative Penalties

 

Introduction:

An item that is part of the Tax Administration Act for many year, but never truly executed on by SARS, is the administrative penalties that can be issued.  I guess in a difficult collection season for SARS, where their taxpayer base is declining more and more, this is a very strategic and logical angle for them.

SARS administrative penalties are raised when a taxpayer is non-compliant in a specific area of their tax affairs.  This can vary from income tax, value added tax or PAYE. Lately we saw a massive influx of administrative penalties levied for outstanding income tax returns.  These penalties can be quite harsh and are being levied monthly (up to a maximum of 36 months) for every year outstanding with SARS.  This can add up very quickly to a huge shock!

 

Fixed scales used by SARS

Below the scales to calculate the penalties, which we can see SARS is also accurately applying currently.

Assessed loss or taxable income for preceding year - Penalty

R0-R250,000                           - R250

R250,000 - R500,000              - R500

R500,001 - R1,000,000           - R1,000

R1,000,001 - R5,000,000        - R2,000

R5,000,001 - R10,000,000      - R4,000

R10,000,001 - R50,000,000    - R8,000

Above R50,000,000                 - R16,000

 

Example of the practical implication:

Scenario:  Your taxable income is R 1,250,000 per annum, with four outstanding income tax returns.

Answer: SARS will levy 4 times R 2,000 = R 10,000 per month.  This will be levied monthly until such returns has been submitted.

You can see how this administrative penalty accounting can very quickly become on of your biggest nightmares.



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What is the solution to this?

I would suggest contacting an accountant to make sure to complete your income tax returns as soon as possible.  Its was never this important to keep your company and yourself compliant with SARS.

Very important note.  If you company is dormant, you are still required to submit zero returns to SARS. This is the biggest misconception.  You must submit those zero returns. 

Once you have submitted all the income tax returns and the company is compliant in all aspects, you will be able to apply to SARS to consider reversing these penalties.

If you do however ignore this notification from SARS, they will most likely issue a 3rd party appointment letter to your employer (if applicable) or the bank.  We do see these actions regularly from SARS to recover any form of taxes.

 

Application for reversal of administrative penalties.

For the most part, we have managed to convince SARS to reverse the administrative penalties, but there is no guarantee that they will in fact do this. 

The following factors need to be considered when doing this application with SARS.

  • Was the company dormant?  In this case SARS never lost any tax payable to them, and generally consider the reversal in favour of the taxpayer.
  • Receive a refund on submitting your income tax return or having a Zero payable amount?  Same principle is applicable.  If SARS did not lose in the process, then generally consider the reversal.  Remember this is NO GAURENTEE.
  •  Did you need to pay money in on your tax assessment?  In this instance SARS rarely consider reversing the admin penalties levied.  There is however no harm in attempting the application.  SARS sometimes consider partial reversals.

Conclusion

I do believe in the phrase; prevention is better than cure.

If your company is dormant for future use, speak to your accountant to keep the company compliant by submitting zero tax returns. 

In the case where the company will not be used again,  your accountant can assist by deregistration with CIPC and SARS.

 

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