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, September 2018

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("SARS") has any discretion to levy the above mentioned penalties as compared to any discretion provided for in the repealed penalty provisions as contained in the Income Tax Act 58 of 1962 ("ITA").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.

Similar Articles
Relevancy Powered by MondaqAI
KPMG, South Africa
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”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
KPMG, South Africa
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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