SARS Set to Narrow the “Inadvertent Error”
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1. Understanding the Current Law
Under the Tax Administration Act, 2011 (TAA), SARS may impose an understatement penalty (USP) whenever a taxpayer makes an error or omission that results in a shortfall of tax.
The penalty percentage depends on the taxpayer’s behaviour — ranging from 0% (for a bona fide inadvertent error) to 200% (for intentional tax evasion).
Currently, section 222(1) recognises that genuine human mistakes can occur despite reasonable care. The only complete exemption from penalties arises when the understatement is due to a “bona fide inadvertent error” — a concept not defined in the TAA, but long understood to mean an honest, non-negligent mistake.
In practice, taxpayers have relied on this defence in limited cases — such as clerical or system errors, exchange-rate miscalculations, or reliance on professional advice later found to be incorrect. It has served as a narrow safety net for those who act in good faith.
2. What the Draft Bill Proposes
The 2025 Draft Tax Administration Laws Amendment Bill (TALAB) proposes to narrow the scope of this defence significantly.
According to the explanatory memorandum, the aim is to clarify and confine the application of “bona fide inadvertent error” to the “substantial understatement” category only.
In other words:
- The concept will no longer apply across all behavioural categories (such as “reasonable care not taken”, “no reasonable grounds”, “gross negligence”, etc.).
- It will apply only where the understatement qualifies as a “substantial understatement”, defined as:
- a shortfall exceeding R1 million, or
- more than 5% of the properly chargeable or refundable tax,
whichever is greater.
In all other cases — including smaller or non-substantial errors — SARS may impose a penalty starting at 25% of the shortfall, even where the taxpayer acted in good faith.
3. SARS’ Policy Rationale
SARS and National Treasury have justified this amendment on the basis that:
- The term “bona fide inadvertent error” is too vague and inconsistently applied;
- Disputes often arise because the TAA does not define what qualifies as “inadvertent” or “bona fide”;
- SARS auditors face difficulty proving whether a mistake was truly inadvertent or due to negligence;
- Narrowing the defence promotes certainty, fairness, and consistent administration.
In essence, SARS wants a more objective, measurable standard, rather than a subjective one based on intent or state of mind.
4. What This Means in Practice
If the draft becomes law in its current form, the impact will be far-reaching:
(a) Fewer Safe Harbours for Genuine Mistakes
Only large understatements (above the “substantial” threshold) will qualify for the inadvertent-error relief.
Smaller, good-faith errors — such as a R250,000 VAT timing difference or a misclassification of income — will no longer be penalty-free.
(b) Automatic Penalties on Minor Mistakes
Even where there was no intention to understate tax, SARS could impose a minimum 25% penalty for “reasonable care not taken”. The burden shifts to the taxpayer to prove that reasonable steps were taken.
(c) Higher Compliance and Review Expectations
Taxpayers will need robust internal controls, review mechanisms, and documentation showing that reasonable care was exercised at every step — from return preparation to sign-off.
This includes documenting professional advice received, calculation workings, and system checks.
(d) More Disputes Expected
Because “inadvertent error” is now tied to a defined monetary threshold, many taxpayers who would previously have been protected will find themselves disputing whether their behaviour was negligent or whether SARS correctly applied the thresholds.
(e) Professional Liability Exposure
Tax practitioners and advisors will need to ensure clear engagement terms, documented advice, and quality-assurance procedures. Clients may increasingly seek indemnity when penalties arise from “advice errors” that no longer qualify as inadvertent.
5. The Bigger Picture: From Forgiveness to Accountability
This change reflects a broader shift in SARS’ administrative philosophy.
Where previous policy recognised that tax compliance involves complex systems, evolving interpretations, and human fallibility, the new approach emphasises strict accountability and risk-based compliance.
In SARS’ view, genuine mistakes should be rare where taxpayers maintain strong governance frameworks. The proposed amendment therefore signals a zero-tolerance stance on carelessness, even if unintended.
6. The Tension Between Fairness and Deterrence
While the policy goal of consistency is understandable, critics argue that narrowing the inadvertent-error relief could:
- Penalise honest taxpayers who make unintentional mistakes;
- Discourage voluntary compliance and self-correction, undermining the VDP framework;
- Overburden small and medium-sized businesses, which often lack the compliance infrastructure of large corporates;
- Lead to increased administrative disputes and appeals, further clogging SARS’ objection and appeal processes.
Professional bodies have already raised concerns that the amendment, as drafted, undermines the fairness principle embedded in section 195 of the Constitution and section 4(2) of the TAA.
7. Practical Takeaways for Taxpayers and Advisors
- Strengthen Review Processes
Introduce independent sign-off or second-review protocols on tax returns and reconciliations. - Document Everything
Keep evidence of how calculations were derived, professional advice obtained, and decisions made — to demonstrate “reasonable care”. - Revisit Engagement Letters
Advisors should explicitly define their scope of review and disclaim liability for client-provided data or assumptions. - Consider the Materiality Thresholds
For large corporates, the “substantial understatement” thresholds may still provide relief — but for smaller taxpayers, any error could now attract penalties. - Engage Early with SARS
Where an error is discovered, consider proactive disclosure under the VDP or remedial submission before assessment, to manage exposure.
8. Conclusion
While the 2025 Draft TALAB does not abolish “bona fide inadvertent error” outright, it confines it to a narrow window — effectively limiting penalty relief to large, objectively measurable understatements.
For most taxpayers, this means that the days of leniency for honest mistakes are numbered. SARS’ message is clear: every return must be prepared with demonstrable diligence, documentation, and professional oversight.
Inadvertent error may survive in name — but not in spirit.
