A comparative analysis of the new behaviours and terms introduced in the understatement penalty table in section 223 of the Tax Administration Act

Doolan, Kim

Title: A comparative analysis of the new behaviours and terms introduced in the understatement penalty table in section 223 of the Tax Administration Act
Creator: Doolan, Kim
Subject: South Africa. Tax Administration Act, 2011
Subject: Taxation -- South Africa
Subject: Taxation -- Law and legislation -- South Africa
Subject: Tax administration and procedure -- Law and legislation -- South Africa
Subject: Tax penalties -- Law and legislation -- South Africa
Subject: Taxpayer compliance -- South Africa
Date Issued: 2017
Date: 2017
Type: Thesis
Type: Masters
Type: MCom
Identifier: http://hdl.handle.net/10962/5802
Identifier: vital:20977
Description: The Tax Administration Act became effective on the 1 October 2012 and in Chapter 16 introduced the understatement penalty regime which replaced section 76 of the Income Tax Act. The understatement penalty is calculated by applying a percentage in terms of the table included in section 223 of the Tax Administration Act to the shortfall in tax giving rise to the imposition of the penalty. There are five behaviours reflected in the understatement penalty table in section 223, namely, “substantial understatement”, “reasonable care not taken in completing return”, “no reasonable grounds for tax position taken”, “gross negligence” and “intentional tax evasion”. “Substantial understatement” is the only behaviour defined in the Tax Administration Act. Section 222(1) of the Tax Administration Act requires SARS to impose the penalty reflected in the table in the event of an “understatement”, unless the “understatement” results from a “bona fide inadvertent error”. The term “bona fide inadvertent error” is not defined in the Tax Administration Act; neither is the term “obstructive”. The Memorandum on the Objects of the Tax Administration Laws Amendment Bill confirmed that guidance would be developed in this regard for the use of taxpayers and SARS officials. This guidance has not yet been released. Media reports express the view that the lack of definition of the behaviours is problematic for both SARS and taxpayers as the table is new and there is still room for interpretation and understanding of the meaning of each of the behaviours. The primary goal of this study was is to obtain a better understanding of the meaning of the new behaviours and terms introduced in the understatement penalty table. In addressing this main goal, the penalty tables and behaviours in legislation in New Zealand were compared to South Africa’s understatement penalty. The similarities and differences between the understatement penalty imposed in terms of Chapter 16 of the Tax Administration Act and the additional tax previously imposed in terms of section 76 of the Income Tax Act were also discussed to determine whether this would be of assistance in enabling a better understanding of the meaning of the behaviours and terms in section 223. Guidance on the interpretation of the various behaviours and terms was developed and a definition was proposed for the meaning of “bona fide inadvertent error” and “obstructive” to assist in the objective and consistent application of the understatement penalty table in relation to each shortfall identified. The proposed definition for “bona fide inadvertent error” is as follows: “An honest mistake made or simple oversight, which the taxpayer was not aware of, despite taking reasonable care and displaying a prudent attitude while making a genuine attempt to comply with all applicable tax obligations.” The definition for “obstructive” is proposed as: “Deliberately interfering with, causing difficulties (impeding) or delays in, or preventing the progress of a SARS audit or review.”
Format: 145 pages
Format: pdf
Publisher: Rhodes University
Publisher: Faculty of Commerce, Accounting
Language: English
Rights: Doolan, Kim

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