Understanding Requirements for SARS Penalty Remission

Receiving a penalty from the South African Revenue Service (SARS) can be a daunting experience for individuals and businesses alike. Whether it's for late filing, late payment, or an understatement of tax, these penalties add an unwelcome financial burden. However, not all hope is lost. SARS does provide avenues for taxpayers to request a 'remission' of these penalties under specific circumstances. Understanding the requirements for remission of penalties is crucial for successfully appealing these charges.

At My Accountant, we specialise in guiding South African taxpayers through complex SARS processes, including penalty remission. This comprehensive guide will demystify the rules, explain the process, and help you determine if you qualify for penalty relief.

What Are SARS Penalties and Remission?

Before diving into remission, it's essential to understand why SARS imposes penalties. Penalties are levied to encourage compliance with tax laws. They act as a deterrent against non-compliance, such as failing to submit returns on time, making late payments, or providing incorrect information that leads to a lower tax liability.

Remission, in the context of SARS, refers to the cancellation or reduction of a penalty. It is not an automatic right but rather a discretionary power exercised by SARS when specific criteria are met. The goal of remission is to provide relief to taxpayers who have valid reasons for non-compliance, not to excuse negligence.

Understanding Different Types of SARS Penalties

SARS primarily imposes two broad categories of penalties:

• Administrative Non-Compliance Penalties: These are imposed for failing to comply with administrative duties, such as not submitting a return on time, failing to register for tax, or failing to keep proper records. These can include fixed-amount penalties (e.g., for outstanding returns) or percentage-based penalties (e.g., for late payment).
• Understatement Penalties: These are more serious and apply when a taxpayer makes a 'material omission from, or incorrect statement in, a return' which results in an 'understatement of tax'. This can range from unintentional errors to deliberate tax evasion and carries much higher percentage penalties.

Who Can Apply for Penalty Remission?

Any taxpayer – be it an individual, a company, a trust, or a partnership – who has been assessed with a SARS penalty can apply for remission. The eligibility hinges on the nature of the penalty, the taxpayer's compliance history, and the reasons provided for the non-compliance.

It's important to differentiate between appealing the tax assessment itself and appealing the penalty. Remission specifically deals with the penalty, assuming the underlying tax liability is correct. If you believe the original tax assessment is incorrect, that would require a separate objection and appeal process.

Key Requirements for Remission of Penalties

Successfully applying for remission of penalties requires a clear understanding of SARS's criteria. While each case is assessed on its merits, the following are the primary requirements for remission of penalties:

• Payment of the Original Tax Liability: This is fundamental. Before SARS will consider remitting a penalty, the outstanding capital tax amount to which the penalty relates must generally be paid in full, or arrangements made for its payment. Remission is about the penalty, not the core tax.
• Reasonable Grounds for Non-Compliance: You must be able to demonstrate 'reasonable grounds' for your failure to comply. This is the cornerstone of a successful remission application. SARS defines reasonable grounds as circumstances that were beyond your control and could not have been foreseen or avoided. Examples include:
  • Serious illness or disability of the taxpayer.
  • Death of a close family member.
  • Natural disaster (e.g., floods, fires).
  • Unforeseen serious system failures (e.g., extended power outages, internet collapse).
  • Unavoidable absence from South Africa.
  • Serious financial hardship (often considered in conjunction with other factors).
  • Mistake of fact, reasonable reliance on incorrect advice from a SARS official (with proof).

  It's crucial that these circumstances directly prevented you from complying with your tax obligations.

• Good Compliance History (Beneficial): While not an absolute requirement, a taxpayer with a consistent record of compliance is more likely to be viewed favourably by SARS when requesting remission, especially for administrative penalties. If this is a first-time or isolated incident of non-compliance, your case for remission is often strengthened.
• Voluntary Disclosure (Understatement Penalties): For understatement penalties, the Voluntary Disclosure Programme (VDP) is often the most effective route. If you voluntarily disclose an understatement of tax before SARS initiates an audit or investigation, the understatement penalty can be significantly reduced or even remitted entirely, provided all other VDP requirements are met. Learn more about the Voluntary Disclosure Programme with My Accountant.

For more detailed information on SARS’s approach to penalties, you can consult the official SARS Service Charter.

The Application Process: How to Request Remission

Applying for penalty remission requires a structured approach. Here's a general outline of the steps:

1. Identify the Specific Penalty: Ensure you understand exactly which penalty has been levied (e.g., late payment penalty for VAT, administrative penalty for outstanding income tax returns). This information is available on your SARS assessment or statement of account.
2. Gather Supporting Documentation: This is critical. Collect all relevant evidence that supports your claim of reasonable grounds. This could include medical certificates, death certificates, affidavits, bank statements (for financial hardship), proof of system errors, or communication with SARS officials. The more evidence you have, the stronger your case.
3. Access SARS eFiling or a SARS Branch: Most remission requests can be initiated via SARS eFiling. Navigate to the relevant tax type and penalty section, where you should find an option to