For years, taxpayers and their advisors have relied on a small phrase in the Tax Administration Act (TAA) as a defence against understatement penalties, which can run up to 200 percent of the shortfall between what taxpayers declared and the revised assessment. But that lifeline is now on the chopping block. 

Section 222(1) of the TAA has contained a deceptively simple safeguard: no understatement penalty is payable “if the understatement results from a bona fide inadvertent error”, in effect meaning an innocent misstatement by a taxpayer resulting in an understatement without the intention to deceive. On its face, that exemption applies to all understatement categories, whether a substantial understatement, negligence or gross negligence. 

Lifeline to be Cut by Treasury?

As the 2025 tax filing season moves closer to its 20 October deadline, taxpayers are once again confronted with the sharp teeth of the South African Revenue Service (Sars) understatement penalty regime and National Treasury has now proposed redrawing the battlefield. 

Clause 21 of the 2025 Tax Administration Laws Amendment Bill (TALAB) does not delete or rewrite section 222(1). Instead, it “clarifies” that the carve-out was only ever meant to apply to cases of substantial understatement, being a category triggered by an objective calculation, not by taxpayer behaviour. The accompanying memorandum makes it clear that Treasury views the wider use of bona fide inadvertent error as “contentious and adverse” to a coherent penalty framework.

The Tension Created

This suggested tax law amendment creates a dangerous tension. On the one hand, the statute itself still contains broad language, and nothing in section 222 of the TAA confines the exemption to one category. On the other hand, a taxpayer can still argue for its broad application, but they will run straight into TALAB 2025’s stated clarification, which may be persuasive to Sars and the courts. 

That is why this amendment should be understood as narrowing the practical application thereof, rather than understanding the law at face value.

The Grim Practical Effect

Even if the legal argument remains technically available, Sars will almost certainly reject it outside the substantial understatement category, forcing costly and uncertain litigation. For taxpayers, the practical effect of this amendment is grim. 

In the meantime, penalties accrue, interest compounds, and Sars’s collection powers march forward: with bank accounts frozen, assets attached, third-party appointments issued without warning. The so-called “bona fide inadvertent error” defence may still exist on paper, but in practice it will be little more than a paper shield against a revenue authority determined to collect at all costs.

The timing could not be harsher. Filing season is when mistakes are most likely: hurried calculations, reliance on outdated figures, and confusion over complex tax law provisions. Until now, taxpayers hoped to argue that such missteps were mere bona fide inadvertent errors. 

However, after TALAB 2025, they will be told that those errors amount to negligence, and negligence attracts steep penalties that can cripple both businesses and households.

Clarity vs Closing Loopholes

Arguably, TALAB 2025 is not about providing clarity of interpretation to taxpayers, but rather about closing loopholes. Taxpayers who thought they had a wide safety net under section 222 of the TAA will find it rapidly cut away, leaving them exposed to penalties, Sars enforcement measures, and the risk of financial ruin. 

The safest path forward is brutal in its simplicity: file on time, file accurately the first time, and assume that every mistake, however honest, will be treated not as inadvertence but rather as understatement – with Sars penalties consequently being imposed.

Written by André Daniels, Head of Tax Controversy & Dispute Resolution at Tax Consulting SA