SARS taxpayer crackdown leaves no room for error

A new tax Bill effectively removes the long-relied-on “bona fide inadvertent error” defence, exposing taxpayers to harsher penalties, costly disputes with SARS, and increased risk of financial ruin for even honest mistakes.

André Daniels, head of tax controversy and dispute resolution at Tax Consulting SA, explained that taxpayers and their advisors have been relying on the bona fide inadvertent error defence against understatement penalties for years.

These penalties can run up to 200% of the shortfall between what taxpayers declared and the revised assessment. “ But that lifeline is now on the chopping block,” Daniels said.

“Section 222(1) of the TAA has contained a deceptively simple safeguard: no understatement penalty is payable ‘if the understatement results from a bona fide inadvertent error’.”

Effectively, this means that an innocent misstatement by a taxpayer resulted in an understatement without the intention to deceive.

“On its face, that exemption applies to all understatement categories, whether a substantial understatement, negligence or gross negligence.”

Daniels warned that as the 2025 tax filing season moves closer to its 20 October deadline, taxpayers are again being confronted with the South African Revenue Service (SARS) understatement penalty regime.

The difference is that, going forward, enforcement may be even more harsh than taxpayers are used to. “National Treasury has now proposed redrawing the battlefield,” he said.

Clause 21 of the 2025 Tax Administration Laws Amendment Bill (TALAB) does not delete or rewrite section 222(1).

“Instead, it “clarifies” that the carve-out was only ever meant to apply to cases of substantial understatement, being a category triggered by an objective calculation, not by taxpayer behaviour.”

“The accompanying memorandum makes it clear that Treasury views the wider use of bona fide inadvertent error as “contentious and adverse” to a coherent penalty framework.”

SARS cuts away the safety net

According to Daniels, the suggested tax law amendment contained in Clause 21 creates a dangerous tension. “On the one hand, the statute itself still contains broad language, and nothing in section 222 of the TAA confines the exemption to one category.”

“On the other hand, a taxpayer can still argue for its broad application, but they will run straight into TALAB 2025’s stated clarification, which may be persuasive to SARS and the courts.”

Daniels said this is why the amendment should be understood as narrowing the practical application, rather than understanding the law at face value.

“Even if the legal argument remains technically available, SARS will almost certainly reject it outside the substantial understatement category, forcing costly and uncertain litigation. For taxpayers, the practical effect of this amendment is grim.”

“In the meantime, penalties accrue, interest compounds, and SARS’s collection powers march forward: with bank accounts frozen, assets attached, third-party appointments issued without warning.”

Even though the so-called “bona fide inadvertent error” defence may still exist on paper, in practice, Daniels said it will be little more than a paper shield against a revenue authority determined to collect at all costs.

“The timing could not be harsher. Filing season is when mistakes are most likely: hurried calculations, reliance on outdated figures, and confusion over complex tax law provisions.”

Until this amendment, taxpayers hoped to argue that such missteps were mere bona fide inadvertent errors.

“However, after TALAB 2025, they will be told that those errors amount to negligence, and negligence attracts steep penalties that can cripple both businesses and households.”

Daniels noted that, arguably, TALAB 2025 is not about providing clarity of interpretation to taxpayers, but rather about closing loopholes.

“Taxpayers who thought they had a wide safety net under section 222 of the TAA will find it rapidly cut away, leaving them exposed to penalties, SARS enforcement measures, and the risk of financial ruin.”

He advised that the safest path forward for taxpayers is simply to file on time and accurately the first time.

“Assume that every mistake, however honest, will be treated not as inadvertence but rather as understatement – with SARS penalties consequently being imposed.”