The Tax Administration Act (“the Act”) allows SARS the right to impose tax penalties on taxpayers who fail to pay their taxes, or submit returns as and when required. The Act distinguishes mainly between two types of penalties:
- Administrative penalties, which relates to administrative non-compliance by a taxpayer, however, such non-compliance is not necessarily a criminal offence. This penalty may either be a fixed amount penalty (based on the taxpayer’s annual income) or a percentage based penalty; and
- Criminal penalties, relating to some criminal offences provided for in the Act.
The Act provides that a taxpayer will receive an administrative ‘percentage based’ penalty when tax is not paid by such taxpayer as and when required, which penalty will be equal to 10% (ten percent) of the unpaid taxes. An administrative non-compliance penalty is imposed by considering the seriousness and duration of the taxpayer’s non-compliance.
However, administrative non-compliance penalties are imposed by SARS through administrative action and are imposed to punish the taxpayer for his / her / its non-compliance and to discourage future non-compliance of such taxpayer’s fiscal obligation. A criminal penalty on the other hand is imposed by a court of law.
A criminal penalty takes the form of a fine or imprisonment in cases of wilful misconduct by the taxpayer, however, the onus of proof that the taxpayer acted wilfully and without just cause, is on the prosecution.