222.    Understatement penalty

(1)     In the event of an “understatement” by a taxpayer, the taxpayer must pay, in addition to the “tax” payable for the relevant tax period, the understatement penalty determined under subsection (2) unless the ‘understatement’ results from a bona fide inadvertent error.

(2)   The understatement penalty is the amount resulting from applying the highest applicable understatement penalty percentage in accordance with the table in section 223 to each shortfall determined under subsections (3) and (4) in relation to each ‘understatement’.

[Subsection (2) substituted by section 75(a) of Act 39 of 2013 and by section 23(a) of Act 22 of 2018.]

(3)     The shortfall is the sum of-

(a)     the difference between the amount of ‘tax’ properly chargeable for the tax period and the amount of ‘tax’ that would have been chargeable for the tax period if the ‘understatement’ were accepted;

(b)     the difference between the amount properly refundable for the tax period and the amount that would have been refundable if the ‘understatement’ were accepted; and

(c)     the difference between the amount of an assessed loss or any other benefit to the taxpayer properly carried forward from the tax period to a succeeding tax period and the amount that would have been carried forward if the ‘understatement’ were accepted, multiplied by the tax rate determined under subsection (5).

(4)  

(a)   If there is a difference under both paragraphs (a) and (b) of subsection (3), the shortfall must be reduced by the amount of any duplication between the paragraphs.

(b)   Where the ‘understatement’ is the failure to submit a return, the ‘tax’ that resulted from the ‘understatement’, had the ‘understatement’ been accepted, for purposes of subsection (3), must be regarded as nil.

[Subsection (4) substituted by section 75(c) of Act 39 of 2013 and by section 23(b) of Act 22 of 2018.]

(5)     The tax rate applicable to the shortfall determined under subsections (3) and (4) is the maximum tax rate applicable to the taxpayer, ignoring an assessed loss or any other benefit brought forward from a preceding tax period to the tax period.

(6)     Any penalty imposed under subsection (2) must be reduced by any penalty imposed under section 4(2) of the Employment Tax Incentive Act, 2013, in respect of the same employment tax incentive amount.

[Subsection (6) added section 27(1) by of Act 16 of 2022 deemed effective on 1 September 2022, and applicable to any return, for purposes of paragraph 14(2) of the Fourth Schedule to the Income Tax Act, submitted or after that date]