Operating a business in South Africa comes with a non-negotiable obligation: tax compliance. Yet many businesses only discover the true cost of a compliance gap when a penalty notice from the South African Revenue Service (SARS) lands in their inbox. SARS penalties range from administrative fines and late-payment charges to understatement penalties, and enforcement has intensified in recent years. This article breaks down the most common penalty types, what triggers them, and how to avoid them.
1. Administrative Penalties: Monthly Fines for Late Submission
Administrative non-compliance penalties are levied under Section 210 of the Tax Administration Act. They are the most common penalty type, they are triggered automatically, and they accumulate monthly. The amount depends on the taxpayer’s taxable income for the preceding tax year.
Fixed-amount penalties start at R250 for low-income taxpayers or assessed losses, and can reach R16,000 per month for higher-income entities. The critical point is that this is not a once-off penalty. For as long as the return remains outstanding, SARS adds another penalty each month — up to 35 months if SARS has the current registered address, or 47 months if the address is unknown. What looks like a manageable monthly charge can compound into hundreds of thousands of rands over several years.
Following legislative amendments effective December 2022, individual taxpayers can now trigger penalties with even a single outstanding return (going back to the 2007 tax year), rather than requiring two or more outstanding returns. For companies, the same applies to outstanding returns for assessment years 2009 and later. Dormant companies are not exempt either — they must submit nil returns to avoid accumulating penalties.
2. Percentage-Based Penalties: Late Payment and Tax-Specific Charges
Percentage-based penalties are calculated on the unpaid tax amount, typically triggered when payment is late. They operate alongside administrative penalties, not instead of them.
VAT attracts an immediate 10% late-payment penalty, plus daily interest until the amount is settled. PAYE carries a 10% penalty plus daily interest for late reconciliation submissions or late payments. Provisional tax incurs a 10% penalty for late submission or payment; where taxable income is understated in the second provisional return — whether deliberately or negligently — an understatement penalty of up to 20% may apply.
For corporate income tax, a 10% penalty applies in specified circumstances. Importantly, neither penalties nor interest are deductible for income tax purposes.
3. Understatement Penalties: A Tiered System Based on Behaviour
Understatement penalties apply where a return contains an omission, an incorrect statement, a failure to submit a return (where tax remains unpaid without a submission obligation), or an impermissible avoidance arrangement. The key feature is that the penalty percentage depends on how SARS classifies the taxpayer’s behaviour — not merely on whether fraud occurred.
Under the penalty table in Section 223 of the Tax Administration Act, the behaviour categories and corresponding percentages are:
| Behaviour | Standard case | Obstruction or repeat case |
|---|---|---|
| Substantial understatement | 10% | 20% |
| Reasonable care not taken | 25% | 50% |
| No reasonable grounds for tax position | 50% | 75% |
| Impermissible avoidance arrangement | 75% | 100% |
| Gross negligence | 100% | 125% |
| Intentional tax evasion | 150% | 200% |
A “substantial understatement” occurs where the prejudice to the fiscus exceeds the greater of 5% of the correct tax or R1,000,000. A “repeat case” applies where the same behaviour occurs again within five years.
The practical implication is significant: a taxpayer does not need to be shown to have intended evasion to face a penalty of 25% to 50%. They may be penalised simply for failing to take reasonable care or for adopting a tax position without reasonable grounds. Court judgments have confirmed that even where a taxpayer claims reasonable care, a 25% penalty will stand if the taxpayer cannot substantiate that claim with evidence.
4. Compliance Recommendations: Act Before Penalties Compound
When facing SARS penalties, waiting passively means daily interest stacking on top of monthly penalties. If you dispute a penalty, you can submit a Request for Remission via eFiling, followed by a Notice of Objection and then a Notice of Appeal. A remission request must explain the reasons for non-compliance and set out the amount in dispute.
It is also worth noting that the 2026 Tax Administration Act amendments adjusted the “bona fide inadvertent error” exemption: this defence no longer automatically excludes the imposition of penalties, and taxpayers must prove the nature of the error in the specific circumstances. In other words, “an honest mistake” is no longer a blanket — it requires substantive evidence.
For businesses, the most reliable strategy remains proactive compliance management: ensure all returns are submitted on time, even nil returns; track VAT, PAYE and provisional tax deadlines; and estimate provisional tax conservatively when income fluctuates, to avoid understatement penalties.
Vuka Business Partners helps businesses build robust tax compliance frameworks — turning compliance from a cost centre into operational certainty at a time when SARS enforcement is only getting stricter. To discuss a specific penalty matter or your compliance arrangements, get in touch with us.