The South African Revenue Service (SARS) plays a vital role in funding the nation’s public services and infrastructure. To ensure the government can meet its financial obligations, SARS requires individuals and businesses to declare their income and pay their fair share of taxes on time. When taxpayers fail to meet these obligations, the revenue service relies on a strict penalty system to enforce compliance.
In recent years, SARS has significantly tightened its approach to tax non-compliance. Following legislative changes implemented in December 2022, the revenue authority can now levy harsh financial penalties for even a single outstanding tax return. This shift demonstrates a zero-tolerance policy toward administrative delays and omissions.
Understanding how these penalties work can save you or your business from severe financial distress. This guide explains the different types of administrative penalties, the specific scenarios that trigger them, and the steps you must take to dispute or settle your tax debt effectively.
Understanding administrative penalties under the TAA
An administrative non-compliance penalty is a fine levied under Section 210 of the Tax Administration Act (TAA). SARS uses this mechanism to penalise taxpayers who fail to meet specific statutory obligations, such as submitting an annual income tax return. These penalties are largely automatic. Once the system identifies an outstanding return or a late payment, it generates a penalty assessment notice and applies the charge to your account.
The fixed-amount penalty structure
For outstanding tax returns, SARS applies a fixed-amount penalty structure based on your assessed loss or taxable income from the preceding year. This fine ranges from R250 for taxpayers with an assessed loss or lower income, up to R16,000 for entities earning above R50 million.
Crucially, this is not a once-off fine. The administrative penalty recurs every month for each month that the non-compliance continues. SARS will keep levying this monthly charge until you submit the outstanding return. The penalty can run for a maximum of 35 consecutive months if SARS has your current registered address, or up to 47 months if your address is unknown. Ignoring a R2,000 monthly penalty could therefore result in a staggering R70,000 debt over 35 months.
Specific penalty scenarios for individuals
For natural persons, the rules regarding personal income tax submissions have become highly stringent. From 1 December 2022, SARS began levying administrative penalties if an individual fails to submit an income tax return for any year of assessment from 2007 onwards.
Previously, individuals usually needed two or more outstanding returns to trigger a penalty. Now, having just one outstanding income tax return is enough to incur fixed monthly fines. Even if you believe you earn below the tax threshold, you must still submit a zero return if you are registered; otherwise, the system may automatically penalise you.
Specific penalty scenarios for companies
Businesses face a broader range of tax obligations, and non-compliance across different tax types carries heavy financial consequences.
Corporate Income Tax (CIT)
Companies will incur fixed monthly penalties if they fail to submit an income tax return for assessment years ending in 2009 and later. This occurs after SARS issues a final demand requiring submission, and the company fails to comply within 21 business days. Dormant companies are not exempt; they must submit nil returns to avoid accumulating these administrative charges.
Value-Added Tax (VAT)
Vendors registered for VAT must submit returns and make payments by specific deadlines. Late payment of VAT attracts an immediate 10% penalty on the outstanding amount. In addition to this penalty, SARS charges interest compounded daily from the due date until the debt is settled.
Employees’ Tax (PAYE)
Employers act as agents for SARS by withholding tax from employees’ salaries. If an employer submits a late PAYE reconciliation, they face a penalty of 10% of the PAYE deducted for that tax year. Late payment of PAYE also triggers a 10% penalty, alongside daily interest charges.
Provisional Tax
Companies and certain individuals must pay provisional tax to cover their expected income tax liability. Failing to submit a provisional tax return on time, or making a late payment, incurs a 10% penalty. Furthermore, if you deliberately or negligently underestimate your taxable income on a second provisional tax return, SARS can levy an underestimation penalty of up to 20%.
How to dispute a SARS penalty
Mistakes happen, and certain unforeseen circumstances can prevent you from fulfilling your tax obligations on time. If you receive a penalty notice that you believe is unfair, you have the right to dispute it.
The first and most important step is to remedy the non-compliance. You must submit all outstanding tax returns before SARS will entertain any dispute. Submitting the return also stops the monthly penalty from recurring.
Once your filings are up to date, you can submit a Request for Remission (RFR). This is a formal application asking SARS to cancel or reduce the penalty. SARS generally considers an RFR favourably if this is your first incidence of non-compliance, if your company was completely dormant, or if exceptional circumstances apply. Exceptional circumstances include natural disasters, serious illness, or a technical error on the part of SARS.
If SARS disallows or only partially allows your RFR, you can escalate the matter. You have 80 business days to file a Notice of Objection (NOO). Should the objection be rejected, you can subsequently file a Notice of Appeal (NOA) within 30 business days.
Paying your administrative penalties
If you agree with the penalty, or if your dispute process is unsuccessful, you must settle the debt to restore your compliant tax status. SARS offers several payment channels to make this process accessible.
You can pay your administrative penalties directly through the SARS eFiling platform, via an electronic funds transfer (EFT), at your commercial bank, or by visiting a SARS branch. If the accumulated penalties are too large to settle in a single payment, you can contact SARS to arrange a deferred payment plan. This allows you to pay off the debt in manageable monthly instalments.
The broader consequences of ignoring tax debt
Choosing to ignore correspondence from SARS or actively evading tax obligations carries severe repercussions beyond standard administrative penalties.
Third-party agent appointments
If you refuse to pay your penalties, SARS has the legal authority to collect the money by force. They can appoint a third-party agent to deduct the funds directly from your assets. For individuals, this often means SARS will instruct your employer to deduct the penalty from your salary. For businesses, SARS can instruct your bank to freeze your accounts and transfer the owed funds directly to the revenue service.
Criminal prosecution
While administrative penalties are financial, serious tax non-compliance can become a criminal matter. Deliberate tax evasion, claiming fraudulent deductions, or repeatedly refusing to submit returns can lead to criminal prosecution. Being found guilty of tax offences can result in hefty fines and potential imprisonment.
Economic impact
Widespread tax non-compliance creates a massive shortfall in the national fiscus. When individuals and companies fail to pay their taxes, the government struggles to fund critical public services like healthcare, education, and infrastructure development. Maintaining tax compliance is a civic duty that ensures the economic stability and growth of South Africa.
Take control of your tax compliance
Falling behind on your tax submissions can trigger a rapid accumulation of fines, turning a minor oversight into a major financial burden. The shift towards stricter enforcement means that proactive compliance is the only way to protect your finances.
Review your tax profile regularly, keep accurate financial records, and ensure you meet every filing deadline. If you are unsure about your tax status or if you need assistance submitting outstanding returns and lodging an RFR, seek the guidance of a registered tax practitioner. Professional advice will help you navigate the complexities of the Tax Administration Act and keep your record with SARS spotless.