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SARS' goal to align all interest provisions: further or closer to the goal posts?
- 18 September 2017
- Tax Administration
- Rudi Katzke and Yashika Govind
Important:
This article is based on tax law for the tax year ending 28 February 2020.
Authors: Rudi Katzke and Yashika Govind (Webber Wentzel)
Previous press releases issued by SARS have highlighted their intention of moving towards a modernised interest system, with the goal of aligning all the interest provisions in the various tax statutes under one section in the TAA.
With the exception of certain sections in Chapter 12 of the Tax Administration Act 28 of 2011 (TAA), the majority of that Chapter did not come into effect on 1 October 2012 along with the rest of this statute. As a result, the provisions of the other tax statutes regulating the accrual of interest remain in force until the President determines, by proclamation, the date when the relevant suspended provisions of Schedule 1 of the TAA will come into operation.
Currently, section 270(6E)(a) provides that until the whole of Chapter 12 and Schedule 1 to the TAA come into operation, interest on understatement penalties must be calculated in the manner in which additional tax is calculated in the relevant tax acts. In addition, section 270(6E)(b) read with section 187(3)(f) provides that interest on understatement penalties will be calculated from the effective date of the tax understated. The "effective date" is deemed to be the date on which the TAA came into operation (1 October 2012).
The draft Tax Administration Laws Amendment Bill, 2017 (DTALAB) proposes to amend section 270(6E) to allow SARS to separately implement the interest provisions in respect of value-added tax, estate duty and transfer duty, in different phases. The proposed amendment provides that until the whole of Chapter 12 and Schedule 1 of the TAA come into operation, interest on understatement penalties "in respect of a tax type" will be calculated in the same way in which interest on additional tax penalty was calculated before the TAA was promulgated.
In line with the proposed amendments to section 270(6E), the DTALAB also proposes to amend section 272 of the TAA. The latter proposed amendment will permit the Minister of Finance to determine, by public notice, the date on which the interest provisions relating to a specific tax type will come into operation.
At face value, the proposed amendments above do not have any significant effect. Furthermore, the proposed amendments fail to deal with instances where SARS officials have attempted to levy interest in terms of section 89quat of the ITA on understatement penalties imposed in terms of the TAA. Taxpayers should note that the definition of "normal tax" in section 89quat(2) of the ITA does not include understatement penalties imposed under the TAA. On a proper reading it is arguable that interest cannot be imposed on understatement penalties in terms of this provision.