Finance: Penalties for Tax Non-compliance
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PENALTIES FOR TAX NON-COMPLIANCE
The Minister of Finance has released draft regulations intended to prescribe administrative penalties for non-compliance by Gauteng taxpayers with their obligations under the Income Tax Act.
The stated purpose of the draft regulations is to ensure the widest possible compliance with the provisions of the Income Tax Act and to ensure that penalties are imposed consistently and appropriately. The administrative penalties will be imposed by the South African Revenue Service (SARS). A document comparing the systems for administrative penalties in various jurisdictions has also been released.
The draft regulations specify administrative penalties that SARS may impose and the procedures that it must follow when doing so. The “non-compliance” in respect of which penalties may be imposed, is widely defined. It ranges from failures to properly register as a taxpayer or to submit returns, to failures to provide information or documents to SARS when required to do so.
There is a scale of financial penalties, which increases in line with a taxpayer’s taxable income for the year of assessment preceding that in which non-compliance occurs or a penalty is assessed. Companies that are listed or have annual turnovers exceeding R500 million (and, in both cases, their associated companies) have a minimum position on the penalty scale. In addition, penalties will increase if the non-compliance continues for an extended period of time or in cases of repeat non-compliance.
Procedures are also set out in the regulations, under which taxpayers may apply for remission of penalties and the circumstances under which such remission may be appropriate.
There are special remission provisions applicable to failures to register as a taxpayer and taxpayers’ first incidences of non-compliance. In cases of failure to register as a taxpayer, SARS may remit penalties where the taxpayer has come forward voluntarily and has submitted outstanding returns for the last five years. If an act of non-compliance is the first for a particular taxpayer, SARS may remit the penalties if there are reasonable circumstances for the non-compliance and it has been remedied.
In circumstances other than those referred to above, penalties will only be remitted where exceptional circumstances have prevented a taxpayer from complying with its obligations. Exceptional circumstances specifically listed, include natural disasters, errors or delays on the part of SARS and severe financial hardship.
SARS’ decisions in levying penalties or rejecting remittance requests are subject to objection and appeal by Gauteng taxpayers.
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