The South African Revenue Service (Sars) is being strict on the implementation of penalties, and more frequent penalties are being levied due to more leeway being given to Sars.
This is not a problem for South African taxpayers who have been submitting their returns each year, but it is a problem for taxpayers who have been avoiding the submission of tax returns or are unaware that they need to submit their tax returns.
At the end of the 2021 filing season, Sars issued a notice that they are going to levy late submission of return penalties if the 2021 return is not submitted on time. Previously, Sars only levied penalties for the late submission of a return if two or more tax returns are outstanding. They made it clear that it would only be applicable to the 2021 tax return going forward, and not previous returns. This has now also changed.
Understanding Administrative Penalties
Up until now, a penalty was levied if an income tax return is not submitted as required under any tax Act, but it was subject to the number of returns outstanding. If the taxpayer was refusing to meet their obligation to submit a tax return for the tax years 2007 to 2020, and two or more returns were outstanding, Sars levied an administrative penalty. However, Sars announced that they will be levying penalties for the late submission of returns if any single tax return from 2007 to 2020 is outstanding effective from 1 December 2022.
This will then be the general rule, if the taxpayer fails to submit a return, a penalty will be levied immediately based on the one outstanding return or late submission.
What will the penalty amount be?
The penalty amount is subject to the taxable income of the tax assessment in question. It is determined in line with the penalty table:
It is important to submit your tax returns
It is inevitable that individual taxpayers who are not submitting their tax returns will need to pay penalties to Sars. Sars receives third-party information from employers, banks, financial institutions, medical aids, etc. to predetermine what a taxpayer’s taxable income and tax liability will be. This information needs to be confirmed by the taxpayer themselves and be submitted to Sars. Failure to do so will lead to penalties that need to be paid.
Penalties for South African expatriates
South Africans working abroad receives foreign-sourced income which remains taxable in South Africa if they are resident. Their foreign income is subject to the Foreign Exemption of up to R1.25m and foreign tax credits.
The foreign-sourced income is in most cases not subject to Pay As You Earn (PAYE) because services are rendered to foreign employers. The expatriate taxpayer must register as a provisional taxpayer if his foreign income is going to result in a tax liability of more than R30 000 after the Foreign Exemption and foreign tax credits are applied.
Failure to include the foreign income in provisional tax returns might lead to understatement penalties of up to 200% of the shortfall during the annual return submission. This can result in a prodigious liability for the taxpayer depending on the extent of the foreign income received.
Penalties for South African tax non-residents
Sars has recently introduced a formal method of formalising non-residence, which includes a review of the taxpayer’s tax compliance. To formalise non-residence with Sars, all returns need to be up to date, and all outstanding taxes or penalties need to be paid.
This creates a problem for South Africans who departed the country several years ago and now need to formalise their non-residence with Sars to obtain their Notice of Non-Resident tax letter required for external processes. These taxpayers will need to submit all outstanding tax returns to Sars which will be subject to the new penalty rules and will lead to several penalties being levied.
Act now, rather than later
The penalty can accumulate on a monthly basis for as long as the non-compliance is not rectified. This means that the total penalty amount can be a result of R250 to R16 000 per month of non-compliance.
Therefore, it is important to rectify the non-compliance by submitting the return even if you are not in agreement with the penalty raised. In the case where you disagree, you can submit a Request for Remission afterwards.
Written by Reinert van Rensburg, Attorney and Tax Practitioner at Leap Group