SARS Penalties and Interest Explained

When you get something wrong with SARS, the cost usually comes in three separate parts, and it helps to keep them apart. There is a fixed administrative penalty for late or missing paperwork, an understatement penalty charged as a percentage of the tax you left off, and interest that runs on the amount you owe until you pay it. Each is triggered by a different failure and calculated in a different way.

This matters because people often assume one flat fine covers everything. In practice a single late, understated return can attract all three at once, and only one of them scales with how much tax was actually at stake.

The fixed admin penalty: driven by time, not tax

The administrative non-compliance penalty is charged when a return is late or simply never filed. It is set under sections 210 and 211 of the Tax Administration Act as a fixed monthly amount, not a percentage of anything. The amount runs from R250 to R16,000 per month, stepped by your taxable income, and it recurs for every month the return stays outstanding, up to a maximum of 35 months.

What drives this penalty is elapsed time: the monthly amount is the same whether R500 or R500,000 of tax was at stake. A person who never owed a cent can still build up thousands of rand in admin penalties by ignoring a return for a year. This is the penalty that shows up on your statement of account as a recurring monthly line. The way to stop it is to file the outstanding return, which halts the clock, and then to ask SARS to remit the penalty if you have grounds.

The understatement penalty: it scales with the shortfall

The understatement penalty is the one that scales with the tax involved. Under section 222 it is a percentage of the shortfall, the difference between the tax you declared and the tax that was actually due. The percentage is set by your behaviour, using the section 223 table.

Behaviour	Standard case	Obstructive or repeat case
Substantial understatement	10%	20%
Reasonable care not taken in completing the return	25%	50%
No reasonable grounds for the tax position taken	50%	75%
Impermissible avoidance arrangement	75%	100%
Gross negligence	100%	125%
Intentional tax evasion	150%	200%

A "substantial understatement" has a specific meaning: the prejudice to SARS exceeds the greater of 5% of the tax properly chargeable for the period or R1,000,000. The percentages fall if you come forward voluntarily before SARS notifies you of an audit, and there is no penalty at all where your position was a genuine, reasonable reading of the law and, for a substantial understatement, you had full disclosure and a qualifying independent tax opinion by the time the return was due.

Interest: a running charge, not a fine

Interest is not a penalty. It is the time-value charge on tax you were holding that should have been with SARS. It runs on the outstanding balance at a prescribed rate set by the Minister and published in the Government Gazette, so the rate moves with the repo rate and changes every few months. With effect from 1 March 2026 the prescribed rate on tax owed is 10.25% a year. Because it accrues on the balance until you settle, interest keeps growing while a penalty is a one-off charge.

A worked example

Take a taxpayer who claimed a deduction with no reasonable grounds and understated their tax by R60,000 for the 2026 year of assessment. SARS picks it up on assessment, so this is a standard case.

Understatement penalty: R60,000 x 50% = R30,000 Interest at the prescribed rate, taken here as 10.25% a year for illustration, on the R60,000 outstanding for an assumed 12 months: R60,000 x 10.25% = R6,150 Tax shortfall itself: R60,000

Total to settle = R60,000 + R30,000 + R6,150 = R96,150

The R60,000 was always owed. The R30,000 penalty is fixed once the behaviour category is set, and the R6,150 keeps climbing for as long as the debt sits unpaid. If the same person had disclosed the error before SARS started an audit, the penalty column would have dropped sharply, because voluntary disclosure before an audit moves you into a lower column of the section 223 table.

You can check what your correct liability should have been in the first place using the TaxRationale income tax calculator, and if you think SARS has the assessment wrong, the article on how to object to a SARS assessment covers the dispute route.