Abstract:
The principal goal of penalties is based on a simple premise, namely that the threat of punishment deters unwanted behaviour (i.e., non-compliance and tax evasion). The purpose of the understatement penalty (“USP”) regime under the Tax Administration Act, 28 of 2011 (“TAA”) is to encourage voluntary compliance and deter unwanted behaviour such as non-compliance and tax evasion. Thus, the purpose of the understatement penalty regime is not to raise money for the fiscus, but rather to ensure taxpayer compliance.
As a result of the absence of a clear definition of the meaning of the phrase “bona fide inadvertent error”, taxpayers are subjected to an inconsistent application of the criteria by SARS officials that could result in subjectivity and the imposition of understatement penalties in situations where it is not applicable.
Included in the definition of ‘tax’ are penalties (including USPs in terms of section 221). The constitutionality of the USP regime is yet to be raised and disputed by a taxpayer in the Constitutional Court, however, the question arises as to whether, having regard to the purpose of the USP regime as well as the burden of proof, it is reasonable and justifiable for SARS to levy USPs which become due and payable when an assessment is issued before SARS can actually satisfy its burden of proof?
