South Africa: Commissioner's Discretion To Levy Or Remit Penalties Under The Tax Administration Act

Last Updated: 28 March 2013
Article by Beric Croome and Elsabe Strydom

Most Read Contributor in South Africa, November 2017

The Tax Administration Act 28 of 2011 ("TAA") which came into effect on 1 October 2012 (bar a few specific sections) introduced two types of penalties, namely administrative non-compliance penalties and understatement penalties.

This article considers whether the Commissioner of the South African Revenue Service ("SARS") has any discretion to levy the above mentioned penalties as compared to any discretion provided for in the repealed penalty provisions as contained in the Income Tax Act 58 of 1962 ("ITA"). The taxpayer's right to have the penalties remitted as per the TAA compared to the taxpayer's right to remittance in terms of the ITA is also considered. 

Administrative non-compliance penalties

Non-compliance is defined in section 210 of the TAA as a failure by the taxpayer to comply with an obligation that is imposed by a tax act and is listed in a public notice as issued by the Commissioner. To date, SARS has only issued one notice in terms of section 210(2) of the TAA, Government Notice No 790, in terms of which an act of non-compliance arises if a natural person fails to submit an income tax return as and when required under the ITA, for years of assessment commencing on or after 1 March 2006, where that person has two or more outstanding income tax returns for such year of assessment.

In this regard, if SARS is satisfied that non-compliance exists, SARS 'must' impose the appropriate administrative non-compliance penalty. This is in contrast to SARS' discretionary powers previously envisaged in the regulations promulgated under section 75B of the ITA ("regulations"). In terms of the regulations, if the Commissioner was satisfied that the factual basis for any non-compliance as described existed, the Commissioner 'may' previously have imposed the appropriate penalty.

The administrative non-compliance penalty is determined with reference to the taxpayer's assessed loss or taxable income in the year of assessment immediately prior to the year of assessment during which the penalty is assessed and can range from a monthly amount of R250 to R16,000. The penalty is essentially a monthly penalty since it is automatically levied on a monthly basis until the non-compliance is remedied, limited to either 35 or 47 months respectively depending on whether SARS is in possession of the current address of the taxpayer or not.

Also included under the broader category of administrative non-compliance penalties are the reportable arrangement penalty and the percentage based penalty, provided for in sections 212 and 213 of the TAA respectively. A reportable arrangement penalty will apply where a participant fails to disclose the information in respect of a reportable arrangement as required. For each month that the failure continues, limited to 12 months, the participant (other than the promoter) will be liable for a penalty in the amount of R50,000 or R100,000 in the case of the promoter. The amount of the penalty is doubled if the amount of the anticipated tax benefit exceeds R5 million or tripled if the benefit exceeds R10 million. The reportable arrangement penalty was previously limited to a maximum of R1 million in terms of the ITA.

A percentage based penalty 'must' be charged in addition to any other penalty, if SARS is satisfied that an amount of tax was not paid as and when required under a tax Act, equal to the percentage of the amount of unpaid tax as prescribed in the specific tax Act. Again, it appears that SARS does not have any discretion as to whether to levy the percentage based penalty or not. In this regard, for example, the percentage based penalty provided for in paragraph 20 of the Fourth Schedule was previously subject to the Commissioner's discretion under certain circumstances.

Remittance of administrative non-compliance penalties

Whilst under the regulations issued in respect of section 75B of the ITA, SARS had a discretion to remit the whole or a portion of an administrative non-compliance penalty imposed for a first incidence of non-compliance or if the incidence of non-compliance was remedied within 7 days, in terms of section 217 of the TAA, SARS may only remit administrative non-compliance penalties up to an amount of R2,000. The remittance is further subject to being imposed in respect of the first instance of non-compliance or that the duration of the non-compliance is less than five business days.

The limited remittance in terms of the TAA as described above is further subject to SARS being satisfied that reasonable grounds for the non-compliance existed and that the non-compliance has been remedied. The limit is increased to R100,000 in respect of a reportable arrangement penalty, however, since the maximum penalty that SARS may impose on the promoter of a reportable arrangement is R3.6 million, this section provides very limited relief.

In respect of percentage based penalties the amount is also limited to R2,000, that is, if SARS is satisfied that the penalty has been imposed in respect of a first incidence or involved an amount of less than R2,000. Provided further that reasonable grounds for the non-compliance exist and the non-compliance in issue has been remedied.

SARS may also remit the administrative non-compliance penalty or a portion thereof if SARS is satisfied that one or more of the listed exceptional circumstances are present and rendered the taxpayer incapable of complying with the relevant obligation under the relevant tax Act. This list includes, among others, natural or human-made disaster, a capturing error by SARS or any other circumstance of analogous seriousness. These circumstances are similar to the exceptional circumstances previously included in the regulations promulgated under section 75B of the ITA.

It therefore appears that in circumstances where an administrative non-compliance penalty is levied for an instance of non-compliance which is not a first incidence or which did not occur under the listed or analogous exceptional circumstances, the taxpayer will have to follow the objection procedures as provided for in section 104 of the TAA.

Understatement penalties

For purposes of the understatement penalties provided for in Chapter 16 of the TAA, an "understatement" should be distinguished from a "substantial understatement", which terms are both defined in section 221 of the TAA. An "understatement" means any prejudice to SARS in respect of a tax period as a result of a default in rendering a return, an omission from a return, an incorrect statement in a return, or a failure to pay the correct amount of tax where no return is required. On the other hand, a "substantial understatement" means any case where the prejudice to SARS exceeds the greater of 5% of the amount of tax properly chargeable or refundable under a tax act, or R1 million.

Section 222 provides that where there is an understatement, the taxpayer 'must' pay the understatement penalty as determined, that is, SARS has no discretion but to impose the penalty if the requirements are met. This is in contrast to SARS' discretion to impose additional tax of up to 200%, subject to a reduction, having regard to the surrounding circumstances of the case, as provided for in the repealed section 76 of the ITA.

Remittance of understatement penalties

As noted above, previously, under section 76 of the ITA, the Commissioner had a discretion to remit the additional tax levied provided he was satisfied that the taxpayer did not have any intention to evade taxation which led to the act or omission resulting in the incorrect taxable income being disclosed in the taxpayer's return.

In terms of section 223(3) SARS must remit an understatement penalty in certain specific circumstances. These circumstances are very limited and also only apply in respect of substantial understatements. In particular, the taxpayer must have made full disclosure of the arrangement giving rise to the prejudice by no later than the date the relevant return was due and secondly, the taxpayer must have been in possession of an opinion by a registered tax practitioner, which opinion was issued no later than the relevant return date, and which took account of the specific facts and circumstances of the arrangement and confirmed that the taxpayer's position is more likely than not to be upheld if the matter proceeds to court.

It appears that the taxpayer will have to make use of the formal objection procedures in the TAA in instances where for example, an error is made by the taxpayer in completing his tax return (other than an undisputed error as envisaged in section 93 dealing with reduced assessments) and SARS alleges that reasonable care was not taken by the taxpayer in completing his return. Also, in circumstances where a taxpayer makes an error where the quantum of the error results in it being a "substantial understatement", the taxpayer may also not be able to have the understatement penalty remitted in terms of section 223(3), since the taxpayer will not be in possession of the required tax opinion.  However, in the 2013 Budget Review, it was indicated that the law dealing with the understatement penalty needs to be refined for bona fide errors made by a taxpayer in a return.

Section 104 of the TAA provides that a taxpayer may object to an assessment that aggrieves the taxpayer. In this regard an assessment is defined in section 1 of the TAA as, inter alia, the determination of the amount of a tax liability.  However, for purposes of the understatement penalty provisions, the definition of tax specifically excludes any penalty and interest.

Section 102(2) of the TAA provides that SARS has the burden of proving the facts on which it based the imposition of the understatement penalty.  The discretion which SARS had under section 76 of the ITA has, therefore, been removed and a taxpayer would have to allege that SARS was wrong in relying on the facts it used to determine the understatement penalty.

It must be noted that section 224 of the TAA provides that a taxpayer may object against a decision made by SARS not to remit an understatement penalty in terms of section 223(3) of the TAA.

It is clear from the above that there are still many aspects in relation to the practical application of the TAA that require further clarification from SARS.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions