Author : Piet Nel, SAICA’s Project Director
Possible confusion regarding Provisional Tax penalties explained:
The South African Institute of Chartered Accountants (SAICA) has
observed that there is some confusion in the market place
regarding the penalties that the South African Revenue Services
(SARS) can levy, specifically with respect to provisional tax.
Piet Nel, SAICA’s Project Director: Tax says it appears that the source of the confusion may be that taxpayers do not understand the difference between a penalty raised in the event of an understatement of the tax liability in a final tax return (which is levied according to a penalty table and can be from 25% to 200%) and the penalty in the event of taxable income being underestimated for provisional tax purposes.
“The penalty in the event of taxable income being underestimated applies to the second, or final, provisional tax return. The amount of taxable income entered on a provisional tax return will be underestimated if it is less than certain limits,” Nel explains.
These limits depend on whether or not the taxable income finally assessed is less than, equal to, or more than R1-million. This underestimation penalty is fixed at 20%. “In terms of both the Income Tax Act and the Tax Administration Act, this penalty is deemed to be a percentage based penalty levied in terms of the Tax Administration Act and it is clear from the legislation that this is not an understatement penalty,” Nel advises.
For example, if a taxpayer estimated taxable income of R1.1-million in his/her provisional tax returns, whilst the actual taxable income for the year is R1.5-million, SARS will levy a penalty at 20%. This 20% penalty will be calculated on the difference between the tax payable on the minimum amount of the estimate and the taxes actually paid by the taxpayer by way of employees’ tax and provisional tax.
Nel warns that provisional taxpayers must remember that they have a duty to estimate taxable income for purposes of provisional tax, for example, for the return due by individual provisional taxpayers at the end of February this year. If a person fails to submit such an estimate, the person will be liable for another penalty for non-submission of an estimate.
“This penalty is fixed at 20% and is basically calculated on the difference between the tax due for the year, calculated on the legal minimum amount of the estimate, and the tax actually paid during the year.” Nel said that it is advisable that people approach a chartered accountant if they are uncertain whether or not they are provisional taxpayers or with respect to making the estimate itself.
He explains that an understatement penalty may be levied where the taxable income in the final tax return submitted is less than the actual taxable income for the year. For example, if on submission of the ITR12, a taxpayer has disclosed taxable income of R1.4-million whereas his/her actual taxable income for the year is R1.5-million, SARS will impose an understatement penalty on the tax shortfall in accordance with the penalty table, such as a penalty of 25% to 200% depending on the specific taxpayer ‘behaviour’ giving rise to the understatement, as determined by SARS.
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