SARS Penalties: What They Are and How to Avoid Them

SARS Penalties Explained: How They Work and How to Avoid Them

Tax season in South Africa can be stressful enough without the added burden of penalties. Yet every year, thousands of individuals and businesses face financial penalties from SARS (South African Revenue Service)—often because they didn’t fully understand how the system works. In this article, we’ll unpack what SARS penalties are, how they work, and more importantly, how you can avoid them.

What Are SARS Penalties?

SARS penalties are financial charges imposed on taxpayers who fail to meet their tax obligations. These penalties are governed by the Tax Administration Act and can be applied for a variety of reasons, including:

• Missing tax filing deadlines
• Understating income
• Non-payment or late payment of taxes owed
• Submitting incomplete or incorrect tax returns
• Failure to register for taxes when required

The goal of penalties is not to punish you unnecessarily but to encourage compliance and ensure fairness in the tax system.

Common Types of SARS Penalties

Let’s break down the penalties you might encounter:

1. Administrative Non-Compliance Penalty

This is the most common type of penalty. It kicks in when you miss deadlines—for example, not submitting your tax return on time. These penalties are fixed and can range from R250 to R16,000 per month, depending on your taxable income, and they can be charged monthly until the return is submitted (up to 35 months).

2. Understatement Penalty

This applies when SARS believes you’ve deliberately or negligently reported less income or claimed deductions you’re not entitled to. The penalty ranges from 0% to 200% of the unpaid tax, depending on the severity and intent behind the understatement.

3. Late Payment Penalty

If you don’t pay your tax on time, SARS can charge a penalty of 10% of the amount owed, plus interest that accrues daily.

4. Provisional Tax Penalties

If you're a provisional taxpayer and you either fail to submit estimates on time or underestimate your taxable income, SARS can penalise you too. The penalties here are calculated based on the shortfall in estimated vs actual income.

How SARS Calculates Penalties

SARS uses an automated system that flags non-compliance. The calculation is typically based on your tax bracket, how long the return or payment has been overdue, and the nature of the offence. For administrative penalties, the longer you delay, the more you pay. That’s why it’s crucial to stay on top of your tax deadlines.

Can You Dispute a SARS Penalty?

Yes, you can. If you believe a penalty was issued in error or you have valid reasons for non-compliance (such as a medical emergency or loss of income), you can submit a Request for Remission via eFiling or at a SARS branch. Make sure to include supporting documentation and explain your case clearly.

How to Avoid SARS Penalties

The good news? Most penalties are 100% avoidable. Here’s how:

✅ File On Time

Know your deadlines. Tax season for individual taxpayers typically runs from July to October (for non-provisional taxpayers). Mark your calendar or set reminders.

✅ Register for eFiling

This makes the tax process easier and quicker. SARS also sends SMS and email reminders via eFiling.

✅ Keep Accurate Records

Maintain proper documentation of all income, expenses, and deductions so your return is accurate and complete.

✅ Pay on Time

Even if you file on time, forgetting to make payment could still result in penalties. Use the payment reference number (PRN) provided to ensure SARS allocates the payment correctly.

✅ Be Honest

Trying to “outsmart” SARS by underreporting income or inflating expenses can cost you much more in the long run. SARS systems are becoming more advanced and integrated with other financial institutions.

✅ Use a Tax Practitioner (If Needed)

If your finances are complex or you’re unsure about filing, a registered tax practitioner can help you stay compliant and avoid penalties.

Conclusion

Understanding how SARS penalties work is key to avoiding them. With just a bit of planning, honesty, and organisation, you can steer clear of unnecessary costs and stay on SARS’s good side. Whether you're a first-time filer or a seasoned taxpayer, always take your tax responsibilities seriously—because penalties don’t just go away, they grow.