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South Africa: Penalty, interest relief for late payments of tax by businesses (COVID-19)

South Africa: Penalty, interest relief for late payment

National Treasury on 1 May 2020 released revised draft bills providing a legislative framework for certain tax relief measures offered in response to the coronavirus (COVID-19) pandemic.

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Previously, the president announced that additional tax relief measures to be introduced to address the effects of the COVID-19 crisis on the South African economy and workforce would allow businesses with a turnover of more than R100 million a year to seek deferrals of tax payments and without any penalty being imposed for late payments. This relief, however, was not ultimately included in the draft bills.


Penalty relief

While the draft bills do not allow for the deferral of taxes by larger businesses, and thus penalties may be assessed, there may be other alternatives for penalty relief for late payments of tax because of the impact of the COVID-19 pandemic. For instance, if a taxpayer has insufficient cash to pay the provisional tax amount because of the COVID-19 crisis, and the taxpayer timely submits its provisional tax return but does not make payment of the tax due, the taxpayer will be subject to a 10% penalty for late payment of provisional tax. The penalty would be a percentage-based penalty. The South African Revenue Service (SARS) generally has limited authority regarding these penalties. However, section 218 of the Tax Administration Act, allows for the abatement (remittance) of penalties in “exceptional circumstances.”

In terms of section 218, on receipt of a penalty-related request, SARS must abate (remit) the penalty (or applicable portion of the penalty), if SARS is satisfied that the taxpayer was rendered incapable of complying with the obligation as a result of a defined list of circumstances that include:

  • A natural or human-made disaster
  • A civil disturbance or disruption of services
  • Serious financial hardship such as, in the case of a business, an immediate danger to the continuity of the business operations and the continued employment of its employees are jeopardised
  • Any other circumstances of analogous seriousness

The procedure to request abatement (remittance) of the penalty is set out in section 215 of the Tax Administration Act, and these measures require the taxpayer to apply for abatement (remittance) of the penalty and that this request must be accompanied by a description of the circumstances that prevented the taxpayer from complying with the obligation along with supporting documentation and information. The taxpayer has to wait for SARS to levy the penalty for late payment of provisional tax before requesting abatement (remittance). The penalty regime does not provide any mechanism to obtain “pre-approval” for the abatement (remittance) of penalties.


Interest relief

Provided that the taxpayer is able make a payment of the full amount of the estimated tax liability within six months after the end of the year of assessment, no interest will be levied in respect of the late payment of first and/or second provisional tax.

However, when the taxpayer is unable to make payment of the full amount of tax owing within six months of year end, SARS could impose and levy interest. SARS is authorized not to assess interest when the non-payment of the provisional tax is “as a result of circumstances beyond the control of the taxpayer.” The taxpayer would have to apply to SARS for such relief in relation to interest levied when the taxpayer has been unable to make payment within six months after year-end.


Deferral of payment

Sections 167 and 168 of the Tax Administration Act authorize SARS to enter into an agreement allowing a taxpayer to settle a “tax debt” in instalments. For purposes of these provisions, a “tax debt” refers to any amount of tax due or payable and could therefore be interpreted as including amounts due under the provisional tax provisions. However, provided the taxpayer is successful in its request to have penalties abated (remitted), the deferral of payment provisions are only likely to become relevant if the taxpayer is unable to pay the outstanding taxes within six months after the end of the year of assessment and is unable to obtain a waiver of interest on the outstanding amount.

SARS is only permitted to enter into an instalment payment agreement in the following circumstances:

  • The taxpayer suffers from a deficiency of assets or liquidity which is reasonably certain to be remedied in the future.
  • The taxpayer anticipates income or other receipts which can be used to satisfy the tax debt.
  • The prospects of immediate collection activity are poor or uneconomical but are likely to improve in the future.
  • Collection activity would be harsh in the particular case and the deferral or instalment agreement is unlikely to prejudice tax collection, or
  • The taxpayer provides security as may be required by SARS.

Like the penalty regime, no allowance is made for taxpayers to apply to SARS in advance for the deferral of payment.

Read a May 2020 report [PDF 360 KB] prepared by the KPMG member firm in South Africa

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