| (1) | In the event of an "understatement" by a taxpayer, the taxpayer must pay, in addition to the "tax" payable for the relevant tax period, the understatement penalty determined under subsection (2) unless the "understatement" results from a bona fide inadvertent error. |
| (2) | The understatement penalty is the amount resulting from applying the highest applicable understatement penalty percentage in accordance with the table in section 223 to each shortfall determined under subsections (3) and (4) in relation to each 'understatement'. |
[Section 222(2) substituted by section 23(a) of Notice No. 16, GG 42169, dated 17 January 2019 (Tax Administration Laws Amendment Act, 2018 (Act No. 22 of 2018))]
| (3) | The shortfall is the sum of— |
| (a) | the difference between the amount of "tax" properly chargeable for the tax period and the amount of "tax" that would have been chargeable for the tax period if the "understatement" were accepted; |
| (b) | the difference between the amount properly refundable for the tax period and the amount that would have been refundable if the "understatement" were accepted; and |
| (c) | the difference between the amount of an assessed loss or any other benefit to the taxpayer properly carried forward from the tax period to a succeeding tax period and the amount that would have been carried forward if the "understatement" were accepted, multiplied by the tax rate determined under subsection (5). |
| (a) | If there is a difference under both paragraphs (a) and (b) of subsection (3), the shortfall must be reduced by the amount of any duplication between the paragraphs. |
| (b) | Where the 'understatement' is the failure to submit a return, the 'tax' that resulted from the 'understatement', had the 'understatement' been accepted, for purposes of subsection (3), must be regarded as nil. |
[Section 222(4) substituted by section 23(b) of Notice No. 16, GG 42169, dated 17 January 2019 (Tax Administration Laws Amendment Act, 2018 (Act No. 22 of 2018))]
| (5) | The tax rate applicable to the shortfall determined under subsections (3) and (4) is the maximum tax rate applicable to the taxpayer, ignoring an assessed loss or any other benefit brought forward from a preceding tax period to the tax period. |
| (6) | Any penalty imposed under subsection (2) must be reduced by any penalty imposed under section 4(2) of the Employment Tax Incentive Act, 2013, in respect of the same employment tax incentive amount. |
[Section 222(6) inserted by section 27(1) of the Tax Administration Laws Amendment Act, 2022 (Act No. 16 of 2022), Notice No. 1542, GG47827, dated 5 January 2023 - deemed to have come into operation on 1 September 2022, and applies to any return, for purposes of paragraph 14(2) of the Fourth Schedule to the Income Tax Act, submitted on or after that date (section 27(2))]
