The Tax Administration Laws
Amendment Bill, No. 40 of 2013 was introduced in Parliament on 24 October
2013. The President of the Republic of
South Africa must still assent to the
Bill and it must then be published in the Government Gazette before it becomes
Tax Administration Laws Amendment Bill (“TALAB”)
contains various amendments of an administrative nature to various tax Acts
administered by the Commissioner: South African Revenue Service. In this article it is not possible to deal
with all of the amendments contained in the bill and only those amendments
dealing with the transitional rules in the Tax Administration Act, No. 28 of
2011 regulating the imposition of penalties are dealt with.
|Juta's 2010 edition of "Tax Administration" by Beric Croome and Lynette Olivier. |
Currently being updated by Beric Croome for publication later in 2014.
Significant amendments are
being made to the transitional provisions contained in section 270 of the TAA
to deal largely with the imposition of the understatement penalty as opposed to
the additional tax which may have been leviable under another tax Act.
It is indicated in the
explanatory memorandum on the TALAB that during the drafting of the Tax
Administration Bill that SARS consulted with international experts from the International
Monetary Fund and that the constitutionality of the bill was reviewed by both
expert constitutional counsel and the state law advisors who certified the bill
The memorandum states
that during the Parliamentary process, whereby the TAA was enacted, the general
transitional approach in drafting the Tax Administration Bill was that the new Act
will apply to an act, admission or proceeding taken, occurring on or instituted
before the commencement date. It was intended
that this applied also to the imposition of the understatement penalty such
that that penalty would apply from the outset.
It is apparent from the
commentary on the TALAB that to have continued these actions or proceedings
under the previous legislation would have required different processes and
systems within SARS into the indefinite future which would have increased the
cost of the tax administration.
is expressed that the general transitional approach contained in section 270(6)
of the TAA was enacted to permit the imposition of additional tax, as opposed
to the understatement penalty, if the verification, audit and investigation had
been completed before the TAA commenced but the amended assessment had not yet
The section previously
required that the additional tax must have been “capable of” being imposed,
meaning that all other requirements for the intended imposition of the
additional tax must have been met before the TAA commenced but was not yet
The commentary on the TALAB
indicates that uncertainty has arisen in practice whether section 270(6) of the
TAA means that additional tax must be imposed in respect of all returns
containing understatements submitted before the commencement date of the
As a result of the
abovementioned uncertainty amendments are being made to section 270(6) to
clarify that if an understatement penalty cannot be imposed, additional tax may
In principle the previous
regime whereby additional tax was imposed contained a discretion whereby the Commissioner
could levy a penalty ranging from 0 to 200%. In those cases, where it could be
shown that there was no intention to evade tax and there were extenuating
circumstances, SARS generally levied a nominal penalty ranging from 5 to 10%. Where, however, the taxpayer had intended to
evade tax the penalty levied would amount to anything from 100 to 200%.
As a result of the
uncertainties relating to the imposition of the understatement penalty various
new subsections are introduced to section 270(6) of the TAA. The new section 270(6A) of the TAA seeks to
clarify that the purpose of 270(6) was that additional tax may be imposed if
capable of being imposed which would only be the case where the verification or
audit necessary to determine the additional tax, penalty interest had been
completed before the commencement date of the TAA, namely, 1 October 2012.
The new section 270(6B) of the
TAA seeks to address those cases where a taxpayer was not in a position to
comply with the tax opinion requirement contained in section 223 of the TAA by
virtue of the fact that the tax return, for example, a 2010 tax return was
filed prior to the enactment of the TAA.
Under section 223 no penalty may be imposed where the taxpayer obtains
an opinion in the prescribed manner before the filing of the tax return in
question. This requirement is done away
with in respect of tax returns filed before 1 October 2012. Thus, where the taxpayer obtains an opinion
after the return was filed that will assist in mitigating the penalty.
Section 270(6C) of the TAA
will provide that where taxpayers made a voluntary disclosure before 1 October
2012 they may qualify for relief from an understatement penalty if the audit of
their tax affairs was concluded after 1 October 2012.
In addition, a new section 270(6D)(a)
is being introduced to allow a senior SARS official who considers an objection
by the taxpayer against an understatement penalty imposed as a result of an
understatement made in a return submitted before 1 October 2012 to reduce that
penalty if he is satisfied that there were extenuating circumstances. To some extent this reintroduces the
discretion which was available to SARS in section 76 of the Act.
Finally, section 270(6D)(b) of
the TAA deals with additional tax imposed under the Value-Added Tax Act which could
only be imposed if there was an intent to evade tax. Under the new understatement penalty regime a
penalty may be levied if reasonable care was not taken, no reasonable tax
position existed or gross negligence existed.
Thus, the TAA removes the intent requirement as the basis for levying
additional tax under the VAT Act. The
explanatory memorandum recognises that it may be difficult for vendors to argue
that they had known about the application of the understatement penalty regime
to VAT returns submitted before 1 October 2012.
The amendment provides that a senior SARS official who considers an
objection lodged by a taxpayer against an understatement penalty as a result of
an understatement made in a VAT return filed before 1 October 2012 must be
reduce the penalty in full where there was no intent to evade tax.
The amendments to the
transitional rules regulating the imposition of penalties may alleviate a
number of the concerns raised regarding the imposition of understatement
penalties in respect of tax returns filed by taxpayers before 1 October 2012.