Failure to comply with various provisions of tax laws requirements may attract penalties and interest in tax recovery. This section provides a brief description of Interest and Penalties involved and the way they are administered.
1. Interest for underestimating tax payable
Installment payers who estimate their income tax payable for the year of income are expected to show high level of accuracy in estimation. Failure to estimate tax within the allowed limits results into underestimation, which shall attract interest.
This applies where an instalment payer’s estimate or revised estimate of income tax payable for a year of income under section 88 of the Income Tax Act is less than eighty percent (80%) of the correct amount.
The amount if interest that an installment payer shall pay for each period shall be calculated at the statutory rate and compounded monthly, applied to the excess of-
the total amount of income that would have been paid by way of installments during the year of income to the start of the period had the person's estimate or revised estimate equaled the correct amount; over
the amount of income tax paid by installments during the year of income to the start of the period.
Note; The instalment payer shall be liable for interest for each month or part of a month from the date the first instalment for the year of income is payable until the due date by which the person shall file a return of income for the year of income under section 91(1) of the Income Tax Act.
2. Interest for failure to pay tax.
If any amount of tax imposed under any tax law remains unpaid after due dates as required by the respective tax law or regulation, attracts interest. The interest shall be charged at the statutory rate on the amount of tax outstanding at a given time.
In case, a withholding agent fails to pay the withholding tax due, he may not recover from the withholder an interest payable due to this failure
Interest payable under this section or under any other tax law shall not be affected or waived for the reason of delay due to court proceedings or any other dispute resolution process
1. Failure to maintain documents
Failure to maintain proper documents as required by a tax law attracts a penalty for each month or part of the month during which the failure continues. The penalty in case of individual shall be 1 currency point and for a body corporate shall be 10 currency points.
The amount of tax attributable for a certain period and the manner of apportionment of tax assessed shall be determined by the commissioner on a just and reasonable basis
2. Penalties for failure to file tax return
Failure to file return or pay tax on due dates attracts penalty for each month or part of month during which failure continues.
The amount of penalty is taken as the higher of the following:
• 2.5% of the amount of tax assessed with respect to the tax return less tax paid by start of the period towards that amount, or
• In case of an individual, 5 currency points, and for a body corporate is 15 currency points
The penalties apply separately for a failure to file an estimate/provisional return and for a failure to file a final return.
3. Penalty for making false or misleading statements
False or misleading statements may result to tax shortfalls and this attracts penalties. The penalties are as follows:
• where the statement or commissions is made without reasonable excuse, penalty shall be 50% of the tax shortfall
• where the statement or omission is made knowingly or recklessly, penalty shall be 100% of the tax shortfall.
The penalty shall be increased by 10% for the second or subsequent repetition and shall be reduced by 10% if the person voluntarily discloses the statement prior to its discovery by tax officer or the next tax audit of the person
A person is said to make a false or misleading statement if he makes a statement to a tax officer which is false or misleading in a material particular or omits to include in the statement made to the tax officer, any matter or thing without which the statement is misleading in a material particular.
4. Penalty for aiding and abetting.
A person who aids, abets, counsels or induces another person to commit an offence contravenes the provisions of the law. Upon conviction, this person shall be liable for a penalty of 100% of the tax shortfall.
Contravening the provisions of tax laws may result to offences. This involves procedures until conviction of a person and the respective tax recovery mechanisms for various offences are provided by the Tax Administration Act, 2015.