How to avoid unnecessary penalties this provisional tax filing season

There has been a recent trend of SARS imposing penalty assessments for the late submission of income tax returns by provisional taxpayers during the month of January.

These assessments seem to be issued promptly after the tax return is submitted.

While the issuance of the penalties is warranted for non-provisional taxpayers who missed their December 2021 deadline, SARS has also incorrectly imposed these penalties for provisional taxpayers whose deadline for submission is 31 January.

1. Look-out for a reversal from SARS

Fortunately, or unfortunately (depending on your perspective), SARS has not imposed these penalties on all provisional taxpayers. 

This inconsistency appears to be driven by the fact that SARS system is not yet foolproof, and unable to distinguish between provisional and non-provisional taxpayers who submitted their income tax returns during January.

It may be that the system’s algorithm is not designed to first recognise whether a person is or isn’t registered as a provisional taxpayer on e-filing, in which case, the next step would be to automatically levy the penalty in the case of the non-provisional taxpayer.

SARS recently issued the following notice:

Reversal of administrative penalties incorrectly imposed on provisional Taxpayer accounts

The  administrative penalties imposed on the accounts of Provisional Taxpayers for their 2021 PIT returns, due on the 31st of January 2022, will be reversed, and a cancellation letter will be sent out to all affected Taxpayers. 

These reversals will be effected during the week ending 30 January 2022.

So, there may yet be hope!

2. Check whether your client is registered as a provisional taxpayer

It behooves SAIBA members who are registered tax practitioners to check whether the aggrieved provisional taxpayer is indeed registered as such on e-filing. While it may be taken for granted that provisional taxpayers will always be registered as such on e-filing, an experienced tax practitioner is likely to be aware that this is not always the case.

I am sure that many of us are aware that it is common for SARS to rightfully levy a provisional tax penalty on taxpayers who earned a profit from the rental of an immovable property but did not pay the requisite provisional tax as and when it is due.

While the above may be true, it is the experience of tax practitioners that the SARS system is often inconsistent.

3. Decide whether you should lodge a dispute

Should a provisional taxpayer be penalised by SARS for the alleged late submission of their income tax return during January, the obvious thing to do would be to dispute the assessment.

But a simple cost/benefit analysis shows that it does not make business sense for a tax practitioner to spend an hour, or even 30 minutes, disputing a R250 or R500 penalty assessment when one’s hourly rate exceeds the penalty amount itself.

Nevertheless, should it be in the client’s best interests to log a dispute, the dispute resolution process should be followed.

4. Draft and submit the dispute before the penalty due date

For those who are fortunate enough to have tax trainees with the occasional hour or two of idle time at their disposal, it may be a useful opportunity to delegate the dispute to them since a more experienced practitioner already may already have their hands full with more significant matters.

Others may be forced to dispute the assessment themselves for the prudent reason of preserving a long-standing and financially beneficial client relationship.

It is the author’s opinion that such a dispute need not be articulated in pages and pages, but merely state that the penalty ought not be imposed because the 2021 income tax return was submitted by a provisional taxpayer before the due date stated in paragraph 4(b)(iii) of Public Notice 419 of Government Gazette 44571.

It is also recommended that one directly quote that paragraph, while also proving the taxpayer is indeed a provisional taxpayer by attaching the SARS assessment itself, highlighting the section of the assessment showing the income earned by the taxpayer which qualifies him/her as a provisional taxpayer.

Of particular importance is ensuring that the dispute is lodged before the ‘penalty due date’, since section 215(1) of the Tax administration Act, 2011 makes it clear that:

A person who is aggrieved by a ‘penalty assessment’ notice may, on or before the date for payment in the ‘penalty assessment’, in the prescribed form and manner, request SARS to remit the ‘penalty’ in accordance with Part E.

A final point on this issue is that the matter is already being addressed by SAIBA at our regular stakeholder meetings with SARS and that any feedback from SARS will be forthcoming on our regional WhatsApp Groups.