Hundreds of thousands of taxpayers hit with penalties for outstanding returns

The South African Revenue Service (SARS) has imposed penalties amounting to R381 million on 690 000 taxpayers for outstanding returns this year.

The tax authority confirmed that some 609 000 of these taxpayers had been penalised for having just one return outstanding. Since December 2022, penalties can be applied for a single outstanding return.

Previously penalties were only imposed on taxpayers with more than one tax return outstanding, but an amendment to the Tax Administration Act - making it possible for SARS to penalise those with just one return outstanding - has resulted in many more taxpayers being penalised.

A SARS spokesperson confirmed that only 86 000 of the around 690 000 taxpayers penalised this year had received penalties for multiple outstanding returns.

The new penalties for single returns outstanding will rake in R243 million for SARS over just four-and-a-half months – a lot more than the R138 million in penalties imposed so far this year for multiple returns outstanding.

 
Individual penalties run to tens of thousands

Penalties are applied monthly for tax returns dating back many years. The penalty imposed depends on your taxable income.

Penalties for failing to file a return even if you don’t owe any tax start at R250 for each month the return is outstanding, and penalties based on outstanding tax can be as high as R16 000 a month every month until the returns are filed.

This has resulted in penalties of tens of thousands of rands for some taxpayers.

Stephan de Wet, a tax practitioner and financial adviser at Fundi Financial Solutions, warns that if SARS believes you have acted negligently, fraudulently or maliciously when declaring your income, it can audit or request tax returns dating back indefinitely. They are currently doing that aggressively, he says.

Sean van Zyl, a financial planner and tax practitioner at Old Mutual, says he recently assisted a housewife with no earnings who incurred penalties for returns not filed since 1998.

If you have no good reason for not submitting your outstanding returns, file them as soon as possible to stop the penalties.

File then ask for forgiveness

If you have legitimate reasons for not filing an outstanding return, file it as soon as you are able to do so, request a condonation of your late submission, and request the remission of the penalty through eFiling, De Wet says.

A SARS spokesperson said in cases of serious illness, accident or even death, taxpayers or their estates must file as soon as they can and then apply for the remission of the penalty as their failure to comply was due to exceptional circumstances.

Misconceptions about the need to file

SARS has in the past communicated that taxpayers who earn below a certain threshold – currently R500 000 – and receive only income from which Pay As You Earn (PAYE) tax was deducted, do not need to file returns. Read more: Do I need to file a tax return?

This has created misconceptions and resulted in people thinking they don’t need to file, but being hit with penalties for not doing so, Van Zyl says.

Rather than argue this case, it is best to file returns showing you do not owe any tax and then request a remission of the penalties, he says.

Van Zyl says often people want to dispute the penalties immediately, but they should first file the returns.

Don’t ask for the penalties to be remitted because you did not know that you needed to file a return - ignorance of the law is not a valid excuse, Van Zyl says. A valid excuse would be if you were under the impression that your returns were being submitted and did not receive any communication from SARS that returns were outstanding.

When penalties are not waived

De Wet and Van Zyl say requests for remission are not always successful – or may result in only some of the penalties being reversed.

If you have good reasons for not filing and the penalties are not reversed, you can appeal, De Wet says. The initial request is dealt with by an assessor while an appeal goes to a committee, he says.

Requests for remissions should be dealt with within 21 working days, the SARS spokesperson says.

De Wet says if SARS fails to respond to your request, it is a procedural issue that you can take to the Tax Ombud.

Penalties can hold up refunds

If you are owed a tax refund, SARS will refuse to pay the refund until any outstanding penalties are paid, De Wet says. If you want the penalties to be offset against the refund, you have to formally request SARS to do this as the two are in different accounts, he says.

Find the documents

Your outstanding returns should be populated with information SARS has received about your earnings and deductions from your employer, investment companies, retirement administrator, banks and medical scheme.

If you need documents to prove capital gains or medical expenses for older returns, you should ask the relevant institutions if they still have them, the SARS spokesperson says.

Van Zyl says banks can provide archived bank statements for a fee.

Who is being fined?

There may be little sympathy for those who are deliberately evading tax by failing to file returns, but Van Zyl and De Wet say there are also many South Africans who mistakenly think they do not need to file a return. They include South Africans who:

• Have retired. Many retirees mistakenly think they no longer need to pay tax, Van Zyl says. In fact, only those pensioners who earn below the tax thresholds don’t pay income tax. Read more: How do the income tax brackets work and what is my marginal tax rate?

Any retiree who receives income from more than one source – for example, pensions from two different annuities, or a pension and a rental income, or a pension and income from part-time work, must file a tax return, regardless of whether the amount is below the threshold or not. Read more: Retirees with multiple incomes need to carefully consider SARS tax directives and More tax on my pension – can that be right?

• Have left the country but have not filed a final tax return stating that they are no longer a South African resident.
• Are not working but earn passive income such as interest on a bank account or deposit;
• Are not working but make capital gains or losses on property or investments they hold or hold jointly with a spouse.
• Are being paid for freelancer work, making money from a side-hustle or renting out accommodation on, for example, AirBnB. Read more: Does the taxman need to know about your side-hustle?