The unexpected penalties bill from the 2022 tax season: Everybody gets one?

The filing season for non-provisional taxpayers for the 2022 tax period closed on 24 October 2022, and it seems like the South African Revenue Service (SARS) is taking the late and non-filing of tax returns by taxpayers very seriously this time around. Did you receive a bill for penalties this past tax season? Here is why.

19 Jan 2023 3 min read Tax & Exchange Control Alert Article

At a glance

  • The South African Revenue Service (SARS) is taking non-filing and late filing of tax returns seriously during the 2022 tax season.
  • SARS introduced an auto-assessment system, where taxpayers are assessed based on third-party data provided by banks, insurers, employers, and others.
  • Taxpayers who receive auto-assessments should verify their correctness within 40 business days and make any necessary changes. Failure to comply may result in penalties imposed by SARS, ranging from R250 per month upwards for at least 35 months. Provisional taxpayers should submit their returns by the deadline of 23 January 2023 to avoid penalties.

During the 2022 tax season a lot more taxpayers were automatically assessed for their taxable income by SARS. The auto-assessment system was introduced by SARS a few years ago in order to, amongst other things, make filing of income tax returns by individuals easier.

A so-called auto-assessment is generated on the basis that all the income that accrued to or was received by an individual taxpayer during a particular tax year, is reflected in third-party data provided to SARS by, for example, banks, fund administrators, insurers, medical aid schemes and employers. From a more technical legal point of view, it appears that SARS’ legal basis for the issuing of an auto-assessment is section 95 of the Tax Administration Act 28 of 2011 (TAA), which states that SARS may make an original assessment based in whole or partly on an estimate, if a taxpayer does not submit a return.

It is important to note that the auto-assessment generated may only be objected or appealed against if there is compliance with section 95 of the TAA. Read together, sections 95(5) and (6) of the TAA state that only if a taxpayer has requested SARS to issue a reduced assessment within 40 business days of the date of the estimated assessment (auto assessment), and SARS decides not to make a reduced assessment, can the objection or appeal be lodged.   As such, in the auto assessment context, SARS’ stated intention before the start of the tax season was that once an auto  assessment was issued and the taxpayer was notified of it, the taxpayer would be given 40 business days from the date of the issuing of the assessment to verify its correctness and make any changes, if necessary.

It is therefore critical for taxpayers who receive auto assessments to verify the correctness of the assessment as soon as possible after receiving notification thereof.

The period of 40 business days can be extended and the taxpayer’s request must comprise the submission of a full and true return or relevant material. SARS will exercise its discretion to grant an extension only if there are “reasonable grounds” that exist for an extension to be granted..

Failing to submit a return that is due or failing to submit one on time constitutes “non-compliance” as contemplated in section 210(2) of the TAA. In terms of section 210(1) of the TAA, if SARS is satisfied that non-compliance exists, it must impose the appropriate penalty in accordance with the table in section 211 of the TAA.

The penalty that is imposed by SARS will depend on the assessed loss or the taxable income of the taxpayer for the preceding year and works on a sliding scale. Therefore, a taxpayer can find themselves paying anything from R250 upwards  per month for at least 35 months for failing to submit their tax return on time.

Therefore, if you are a provisional taxpayer, make sure you do not miss the deadline of 23 January 2023 to submit your return, and prevent the imposition of penalties completely because SARS is handing out those bills like it’s Christmas in July!

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