Paul Gering - Tax Partner, PKF Durban 

On 12 November 2025, The Minister of Finance tabled the Medium-Term Budget and as part of that process, the Tax Administration Laws Amendment Bill was formally tabled.

An initial draft version of the bill was circulated on the SARS and National Treasury websites in August 2025, and the public were invited to submit written comments. Workshops based on the submissions made were held with National Treasury and SARS thereafter a similar round of public participation workshops took place in Parliament before the Standing Committee on Finance. These processes culminated in a draft response document being issued by SARS and National Treasury on 3 November 2025 and those comments shaped certain changes to the initial draft bill resulting in the revised bill tabled now.

A significant change to the Understatement Penalty regime was proposed in the initial draft bill wherein the wording appeared to remove the general application of the “bona fide inadvertent error” defence for taxpayers who did not fall into the category of a substantial understatement. Fundamentally the complete removal of this application of defence meant that any understatement that did not constitute a substantial understatement (i.e. The greater of R1 million or 5% of the tax shortfall) would be automatically subject to the understatement penalty. 

Our submission raised concerns at the effective removal of the onus on SARS, regardless of no change to the onus specific onus provision in section 102 of the TAA, to establish the behaviour attributable to the understatement. We also proposed a change to the table to include a category of reasonable care taken with no penalty imposable to clarify that such behaviour would not attract a penalty.

In the verbal response to the Parliamentary submission, it appeared that our comment was being seriously considered and this was confirmed in the written draft response document issued on 3 November 2025 as follows:

“an understatement penalty can only be imposed if the taxpayer’s conduct amounts to one of the behaviours listed in the table in section 223. The wording of section 222(1) of the Tax Administration Act will be amended to make this clear.”

The amendment to section 222(1) which will now read as follows:

“In the event of an ‘understatement’ by a taxpayer that involves a behaviour listed in the understatement penalty percentage table in section 223, the taxpayer must pay, in addition to the ‘tax’ payable for the relevant tax period, the understatement penalty determined under subsection (2).”

The insertion of the underlined words above, in our view, actually clarifies the position of SARS having the onus to prove the facts relied upon when imposing the understatement penalty, in respect of the specific category of behaviour selected on the understatement penalty table. However, whilst this was always the intention when this regime was imposed, in practice often this onus is overlooked with taxpayers often being “forced” to rely on the concept of the “bona fide inadvertent error” position previously.

The draft response document also makes the following very important comment:

“it is well established that reliance on professional advice prior to taking a tax position is generally regarded as reasonable. In this way, honest mistakes and good faith errors that have reasonably been made whether based on professional advice or otherwise, do not incur a penalty”

We are optimistic that this amendment provides the much-needed clarity to the onus that SARS bears in establishing that reasonable care was not taken and that SARS auditors will now be more circumspect when imposing penalties and provide the proper facts relied upon in justifying the imposition of an understatement penalty.

This amendment, which is only one of many that has resulted from proper public participation, highlights the importance and the impact of active stakeholder engagement in this legislative process in ensuring the amendments are properly considered by Parliament.