The new understatement penalty regime: A sharp ‘sword’?

Abstract

The objective of this article was to form an opinion on the sharpness of the ‘sword’ of the new mandatory understatement penalty regime of the Tax Administration Act 28 of 2011 (as amended). Based on a review of the new bona fide inadvertent error exclusion and the burden of proof, it was found that it is imperative that comprehensive guidelines be issued expediently in order to prevent inconsistent application by South African Revenue Service (SARS) officials as well as to clarify the alleged automatic penalty position. The conclusion reached is that this sword is very sharp indeed based on its mandatory nature, the effect of the application of the highest penalty percentage and the current lack of guidance from SARS, especially regarding the practical application of the new bona fide inadvertent error exclusion.