Some of the penalties imposed on provisional taxpayers who fail to meet their obligations have recently been simplified, but others have been made more onerous.
The changes to the penalties were made in amendments to the Income Tax Act and the Tax Administration Act. The amendments are contained in last year’s Tax Administration Laws Amendment Act, which was promulgated in January this year.
Johann Benadé, an associate director in KPMG’s tax management services division, says that, before the amendments, the following penalties could be imposed:
* Late payment of provisional tax: a penalty of 10 percent on the assessed amount you owe;
* Late submission of a provisional tax return: a penalty of 20 percent of what you owe; and
* Underestimation of the amount of provisional tax: a penalty of 20 percent of the underestimated amount.
The amendments affect the penalties as follows:
* Late submission and underestimation penalties rationalised. The penalty for late submission has been removed, with effect from the 2015/16 tax year (all tax years starting on or after March 1, 2015). Instead, Benadé says, where a provisional tax return is submitted late, a “nil” return will be deemed to have been submitted, and the penalty for underestimation will be imposed. As such, Benadé says, the amendment does not constitute the scrapping of any penalties that would previously have been imposed, but it consolidates and rationalises the penalty provisions.
“It effectively deals with the potential argument that the underestimation penalty does not apply where no provisional tax estimate was submitted. It also precludes a taxpayer who did not submit an estimation to be in a more favourable position than a taxpayer who submitted an underestimation,” he says.
* Underestimation penalties payable on additional estimates. The South African Revenue Service (SARS) has the discretion to call on a taxpayer to justify a provisional tax estimate. If SARS is dissatisfied with the estimate, it can increase the amount to an amount that it considers reasonable.
Benadé says that, before the amendment, SARS could not impose an underestimation penalty of 20 percent on the increase. However, this is no longer the case. With effect from the 2014/15 tax year (all tax years that started on or after March 1, 2014), SARS is entitled to impose the underestimation penalty where it increases a provisional tax estimate, Benadé says.
* Underestimation penalty reduced by the late-payment penalty. Benadé says the 20-percent underestimation penalty will now be reduced by the amount of any late payment penalty, which means that a taxpayer cannot be penalised twice for the same default. This amendment is effective from the 2014/15 tax year (all tax years starting on or after March 1, 2014).
Benadé says the underestimation penalty will be triggered only in the following scenarios:
- Taxpayers with a taxable income of less than R1 million: if the total of the first and second provisional payments is less than 90 percent of the normal income tax payable on assessment, and is less than the “basic amount” (that is, the normal income tax payable according to the most recent previous assessment).
- Taxpayers with a taxable income of R1 million or more: if the total of the first and second provisional payments is less than 80 percent of the normal income tax payable on assessment, regardless of the basic amount.
Benadé says SARS may remit the underestimation penalty if it is satisfied that the estimate was seriously calculated and was not deliberately or negligently understated. There are two further grounds on which a taxpayer can ask for the penalty to be remitted:
- If it is the first incidence of non-compliance; or
- If there are exceptional circumstances.
Taxpayers should carefully consider the possible penalty remittance options at their disposal before consenting to the substantial underestimation penalty, Benadé says.