EXPLORING KEY CONSIDERATIONS WHEN DETERMINING BONA FIDE INADVERTENT ERRORS RESULTING IN UNDERSTATEMENTS

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Chrizanne de Villiers

https://doi.org/10.22495/jgr_v5_i1_p7

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Abstract

Chapter 16 of the Tax Administration Act (28 of 2011) (the TA Act) deals with understatement penalties. In the event of an ‘understatement’, in terms of Section 222 of the TA Act, a taxpayer must pay an understatement penalty, unless the understatement results from a bona fide inadvertent error. The determining of a bona fide inadvertent error on taxpayers’ returns is a totally new concept in the tax fraternity. It is of utmost importance that this section is applied correctly based on sound evaluation principles and not on professional judgement when determining if the error was indeed the result of a bona fide inadvertent error. This research study focuses on exploring key considerations when determining bona fide inadvertent errors resulting in understatements. The role and importance of tax penalty provisions is explored and the meaning of the different components in the term ‘bona fide inadvertent error’ critically analysed with the purpose to find a possible definition for the term ‘bona fide inadvertent error’. The study also compares the provisions of other tax jurisdictions with regards to errors made resulting in tax understatements in order to find possible guidelines on the application of bona fide inadvertent errors as contained in Section 222 of the TA Act. The findings of the research study revealed that the term ‘bona fide inadvertent error’ contained in Section 222 of the TA Act should be defined urgently and that guidelines must be provided by SARS on the application of the new amendment. SARS should also clarify the application of a bona fide inadvertent error in light of the behaviours contained in Section 223 of the TA Act to avoid any confusion.

Keywords: Bona Fide Inadvertent Error, Tax Administration Act, Tax Administration Laws Amendment Bill, Understatement, Understatement Penalties

How to cite this paper: De Villiers, C. (2016). Exploring key considerations when determining bona fide inadvertent errors resulting in understatements. Journal of Governance and Regulation, 5(1), 51-60. https://doi.org/10.22495/jgr_v5_i1_p7