Penalty & Interest Regime

This Information Sheet (‘IS’) sets out the Commissioner’s practice for imposing penalties under our tax laws (Tax Administration Act 2012 and VAGST Act 2015) where a taxpayer has failed to comply with requirements under those said laws.

This IS does not cover all the details of the relevant tax laws, except the basic obligations of taxpayers to comply under each law; and the penalties imposed if those tax obligations are not complied with 

Note:

The main responsibility for meeting your tax obligations in accordance with the law lies with you, the taxpayer. It cannot be transferred to a third party, such as tax agent. E.g. If the tax agent fails to file your return, you are held responsible, not the tax agent (see: section 41(9) of the Tax Administration Act 2012)

Due Dates

As a Taxpayer, you have certain legal obligations you must fulfil, and are expected to meet certain standards when managing your tax affairs.

Set out below are the due dates for filing tax returns and due dates for paying applicable tax:

VAGSTPAYEProvisional Tax Income Tax
Tax Return Filing Due Date 21st of every month [bi-monthly filing] 15th of every month [monthly filing] N/A 3 months after the end of tax year [annual filing]
Payment Due Date Same as due date for filing but subject to a grace period of 30 Days Same as due date for filing but subject to a grace period of 30 Days 31st March, 31st July & 31st October but subject to a grace period of 30 Days [3 instalments on an annual basis] Same as due date for filing but subject to a grace period of 30 Days

Our tax laws are designed to set out clearly all of your legal obligations, so as to encourage voluntary compliance. Voluntary compliance is when you choose to meet your tax obligations on time or before the due dates, on your own accord without any intervention by the Ministry. This would include, you as the Taxpayer:

  • Correctly determine the amount of tax you have to pay;
  • Deduct or withhold the correct amount of tax from payments or receipts;
  • File and pay tax returns on time or before due dates;
  • Keep all necessary tax information and maintain accurate business records;
  • Co-operate with IRS by disclosing complete and accurate records in a timely manner when required; and 
  • Provide the correct statements to any tax officer on any tax cases 
  • Register Business operation as required for business license, VAGST, PAYE and income tax.

Administrative Penalties & Interest

To punish and deter certain forms of non-compliance, administrative penalties have been created to allow the Commissioner to handle such situation without going to court, which both a time consuming and resource constraint avenue to take. These administrative penalties and interest include:
  • Late filing penalty
  • Late Payment Interest
  • Late Payment Penalty
  • Penalty for failure to maintain records
  • Tax Shortfall Penalty
  • Penal Tax
  • Its is important to note that the Commissioner has the authority to remit, in whole or in part, upon written request by the taxpayer, imposition of any penalty except for: tax shortfall penalty.

    Types of Penalties

    • You are required to file your tax returns by their due dates. If you do not, you may have to pay a LFP. This penalty applies to income tax returns, salary and wage (or PAYE) tax returns and and VAGST Returns.
    • LFP may be remitted by the Commissioner fi you give us a valid reason for not filing your return within stipulated due date.
    • LFP is imposed when a Tax return is not file at the expiration of one month after the due date (i.e. grace period) for filing a tax return.
    • The penalties for failure to file a tax return on time are :
      • Company – SAT$300 per tax period
      • Any other case – SAT$100 per tax period
    • Apply for an extension of time to file your tax return before the due date for filing  to avoid LFP if you are certain you will not be able to file on time.
    • If you fail to file any document required by the Commissioner (other than a tax return) that you are required to file under the tax laws, you are liable to SAT$10 for each day or part of the day that the document remains due, up to a maximum of SAT$500.
    • One of the basic obligations of taxpayers is to pay their taxes on time. If you do not pay your tax on time, you may have to pay late payment interest.
    • LPI is imposed on the unpaid tax immediately after the due date for payment of tax
    • LPI rate is 8.7%
    • Interest of 8.7% is added on the unpaid amount calculated from the date the payment was due to the date payment was made. This only implies to tax that remained unpaid by 01 January 2016 onwards.
    • However, if core/principal amount of tax is paid in full within the ‘grace period’, LPI is automatically reversed.
    • In addition to LPI, LPP is also imposed on a taxpayer who/that fails to pay tax on time.
    • LPP is however imposed  at the expiration of 1 month after the due date for payment of tax.
    • LPP rate is 10%
    • LPP is calculated on the amount of core tax that remains unpaid at the expiration of one month after the due date.
    • Every business must keep and retain business records; and if a taxpayer fails to keep, retain or maintain any document as required under the tax law, then the following penalties are imposed:
      • If the failure is knowingly or recklessly made –  a penalty equal to 75% of the amount of the tax payable for the tax period to which the failure relates.
      • In every other case – a penalty equal to 20% of the amount of tax payable for the tax period to which the failure relates.
      • If there is no tax payable by the taxpayer for the period to which the failure relates, the penalty is:
        • for a company: SAT$300
        • for any other case: SAT$100

     

     

    • A Tax shortfall is when:
      • A tax shortfall is when a taxpayer makes a false or misleading statement to a tax officer in a material particular or omits from a statement made to a tax officer;  and
      • The tax liability of that taxpayer is computed on the basis of that false/misleading statement is less than it would have been if the statement had not been false or misleading; the difference being referred to as the “tax shortfall”.

    Amount of tax shortfall imposed

    • The amount of tax shortfall penalty imposed differs as it depends largely on taxpayer’s actions and what that taxpayer had intended when carrying out that action. Refer to the table below:

      Section of TAA

      Cause

      % of Tax Shortfall

      51(2)(a)

      Knowingly / Recklessly

      50%

      51(2)(b)

      Any other case

      20%

      51(5)(a)

      Without      knowledge      /     not     reasonably expected to have knowledge

      0%

      51(5)(b)

      Reasonably arguable position

      0%

    • The amount of tax shortfall penalty imposed on a person is increased  by :
      • 10% if it is the second application of section 51 to the person; and 
      • 25% if this is the third application or subsequent application of section 51 to that person.
    • The amount of tax shortfall penalty is reduced if the taxpayer voluntarily discloses the false or misleading statement to which section 15 applies before:
      • The Commissioner via tax officers discovers the tax shortfall ; or 
      • The commencement of an audit of the taxpayer’s tax affairs.
    • No tax shortfall penalty applies if:
      • the person who made the statement did mot know and could not reasonably be expected to know that the statement was false or misleading in a material particular; or
      • the tax shortfall arose as a result of a taxpayer taking a reasonably arguable position on the application of a tax law to the taxpayer’s circumstances in filing a self-assessment return.

    What qualifies as a statement made to a tax officer?

    • For the purpose of this penalty, a statement made to a tax officer includes a statement made, in writing or orally:
      • In any application, certificate, declaration, notification, tax return, objection, or other document filed under a tax law.
      • In any information required to be provided under a tax law 
      • In any document provided to a tax officer;
      • In answer to a question asked by a tax officer; or 
      • To another person with the knowledge or reasonable expectation that the statement would be passed on to the tax officer.
    • A penal tax is imposed when there is deficient tax discovered in terms of VAGST. Penal tax does not apply to any other tax type.
    • A deficient tax is the difference between the GST credit or GST liability declared by the registered person and the GST credit or GST liability assessed by the Commissioner.
    • Usually penal tax is charged when the GST credit is more than what should’ve been or when GST liability is less than what should’ve been reported. These are normally discovered during audits.

    How much is the penalty?

    • Tax officer can impose a penalty of up to 30% (maximum) of the amount of penal tax where the results of an audit shows a deficiency.
    • For consistency and fairness of penalties imposed by tax officers, the Commissioner has put into place the following rates and the corresponding grounds justifying impose of each rate:

    PERCENTAGE OF PENAL TAX

    GROUND

    0%

    Taxpayer provided reasonable grounds for deficiency found

    20%

    First application of the Penal Tax section (section 47) and absence of reasonable grounds provided by taxpayer

    50%

    Second application of section 47 and absence of reasonable grounds provided by taxpayer

    100%

    Third application of section 47 and absence of reasonable grounds

    300%

    4th application or continuous application of the section 47; or

    In any case where in the opinion of the Commissioner there has been a deliberate omission or error by the taxpayer to evade

    revenue of government

     

    Share on facebook
    Share on twitter
    Share on linkedin