Does the Tax Court have the power to increase SARS imposed penalties on your assessment?

In the recent Supremacy Court of Appeal case of Purlish Holdings (Pty) Ltd v The Commissioner for SARS (76/18) [2019] ZASCA 04, the question arises as to whether the Tax Court has the power in terms of the Tax Administration Act (section 129(3)) and the Tax Court Rules to increase understatement penalties imposed by SARS on assessments.

In this case, the taxpayer filed nil Provisional Tax Returns for the 2011 - 2014 tax years whereby SARS conducted an Audit and found that the taxpayer received taxable income and should also have registered for VAT and file the relevant returns, which did not happen. As a result, SARS issued assessments for both the Provisional Tax Returns and VAT Returns and imposed understatement penalties at a rate of 100% for both taxes.

The taxpayer objected this and effectively received a reduction in the penalties, for Provisional Tax it was reduced to 25% and for VAT it was reduced to 50%. However, the taxpayer took the matter to Tax Court to determine whether SARS had any right to impose understatement penalties at all, the Tax Court ruled in favor of SARS and increased both penalties back to the original 100%.

The matter was appealed to the SCA and the judgement was as follows:

- The Tax Court will only have the right to increase the understatement penalties should it have been included in SARS' grounds of assessment, the Tax Court cannot do it on its own discretion

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